At a press conference yesterday, the EU’s Tax Commissioner announced that the Commission is proposing to introduce an EU financial transaction tax. Details of the proposed tax are limited at this stage, but the following principles have been established:
- the tax will be payable on transactions that take place between financial institutions; transactions involving individuals will not be taxed
- the tax will apply to most financial products including derivatives
- the tax will be payable by financial institution at their place of residence
- the rate of tax will be 0.1% for shares and bonds and 0.01% for other products
- the issue of shares and bonds, loans to businesses and spot foreign exchange transactions will not be taxed
The Commission estimated that this new tax would generate revenue of €57 billion a year, to be shared between the European and national budgets. The proposal would, however, require unanimous approval from the European Union’s 27 member states and the UK Government (wary of its impact on the City of London) has already indicated that it considers that a financial transaction tax could only work if it were implemented globally. To achieve its stated aims the detailed mechanics of the tax would have to be carefully considered. It will be necessary to ensure that the tax could not be avoided by routing trades through offshore centres and that the cost of the tax would not be passed on to the financial institutions’ customers. In practice there are substantial hurdles to be overcome before this tax can become a reality but this announcement is further evidence of the Commission’s determination to increase the tax contribution of the financial sector.
To access the Commission’s press release, please click here