Let’s start with the good news. Ireland is not part of the group of EU member states pursing an EU Financial Transaction Tax (FTT). This should mean that many transactions by Irish companies will not be liable to FTT. With negotiations on-going about the final form of the FTT, there is still time to consider the potential impact and adapt if required. On another positive note, the conclusion of insurance contracts is not within the scope of the current FTT proposal.
So, what is the bad news? Irish insurers and reinsurers will be impacted on transactions that involve countries which are in the FTT zone. FTT will be charged on an Irish financial institution (or any non FTT zone institution) where there is an FTT zone counterparty (whether itself a financial institution or not). For example, a transaction between an Irish insurance company and a German party would render both parties liable to German FTT at the German rate (the Directive provides a minimum rate of 0.01% on derivatives and 0.1% on other transactions). Under the “issuance principle”, transactions between two non FTT zone countries will also be liable to FTT for both parties on transactions involving financial products issued in the FTT zone.
While it is not clear what the final form of any FTT will be (particularly given that the UK has announced it will challenge the FTT’s legality), companies should consider the potential impact. Some questions to consider include the following:
- What financial instruments do you hold and who do you trade with?
- How might your cost of capital be impacted?
- Who and where are your counterparties and what protection do you have against counterparty default (the FTT proposal provides for joint and several liability)
- Who will bear the cost? Will it be passed to policyholders, and how?
- Are any intra-group transactions anticipated? There is no intra-group exemption so companies may accelerate any proposed transactions.
While it will take time for any FTT proposal to be finalised, it would be wise to consider the impact now given its potentially far-reaching consequences.