On December 8, 2015, the ten remaining European Union Member States working towards the introduction of an EU financial transaction tax (FTT) (the Participating Member States)1 issued a statement confirming their commitment to the introduction of the FTT and setting out certain features that should form part of the FTT (the Statement).
The Statement2 contains little by way of technical detail; such detail is due to be discussed and finalized over the course of 2016. Instead, the Statement sets out the key features that the Participating Member States have agreed should form part of the FTT.
With respect to the application of the FTT to shares, the Statement identifies that:
- all transactions, including intra-day transactions, should be taxed;
- all transactions in the chain should be taxed, except transactions by agents and clearing members when acting as ‘facilitators,’ i.e., not when acting on own account;
- a narrow market making exemption may be necessary “in order to sustain liquidity in illiquid market configurations;” and
- the territorial scope of the FTT should follow the European Commission’s proposal.3
However, the Statement suggests that discussions remain ongoing with respect to the territorial scope of the FTT as it applies to shares, noting specifically that consideration is being given as to whether “it is more sensible to start taxation with only shares issued in the member states participating in the enhanced cooperation.” As readers will be aware, the territorial scope of the FTT has been a contentious point. Accordingly, recognition that further consideration should be given to this issue is of practical importance. With respect to the application of the FTT to derivatives, the Statement identifies that:
- the territorial scope of the tax should follow the Commission’s proposal, i.e., based on the residence and issuance principles;
- there should be no exemption for market making activities; and
- taxation should be based on the principle of the widest possible tax base and low rates (the tax base for derivatives will vary depending on the nature of the derivative concerned).
In addition to the features noted above, the Statement provides that further consideration is required as to (i) the impact of the FTT on the ‘real economy’ and pension schemes, and (ii) the financial viability of the FTT in each jurisdiction. With respect to next steps, the Statement provides that experts, together with the Commission, should consider the applicable tax rates under the FTT. The Statement anticipates final resolution of all outstanding open items by June 30, 2016. Final Remarks With the political will behind the FTT appearing to have ebbed away somewhat over the course of 2015, the Statement marks a turning of the tide and seems to demonstrate a renewed commitment by the Participating Member States to the introduction of the FTT. However, despite the broad agreement apparently reached by the Participating Member States on certain aspects of the FTT, the Statement contains little technical detail. Whether political consensus can be reached on the remaining open points by the June 30, 2016 deadline remains to be seen. Notwithstanding, it will be important that those potentially affected institutions closely monitor any further developments with respect to the FTT over the course of 2016 and consider the impact that the FTT (if introduced) may have on their business operations.