The progress of the 11 EU Member States, who committed in principle to enhanced co-operation on the Financial Transactions Tax (“FTT”), has been glacial. The disagreements between the E-11 are deep-seeded, relating to matters such as the point of collection of the tax and its ultimate distribution; issues not easily resolved. The proposed date of implementation of the FTT has already slipped 6 months later than the European Commission originally envisaged. Objections from all corners of the financial services sector have further slowed the negotiation process.
On 2 July 2013, the European Parliament (“EP”) suggested a number of amendments to the proposed FTT (including providing for permanently reduced rates for repos). The European Council of Ministers is not obliged to take account of the EP’s suggestions, but the reduced rate on repos demonstrates that even the EP, long a supporter of the FTT, is alive to the possibility of the FTT damaging sovereign access to capital markets.
Meanwhile, in the background of the stalling FTT, Italy will become the first EU member state to introduce a tax on high-frequency trading, when it does so later this week. This is a move likely to be observed and tracked with great interest by the rest of the EU, both in terms of its application and effects. Similar to the proposed FTT, this tax will apply regardless of the origin or residence of the other party to the transaction. The actions of the Italian government, while potentially counter-productive in the context of the FTT as a whole, will serve as a useful test case.
Where progress on the FTT will come from is becoming difficult to gauge. As Manfred Bergman, Director of the European Commission’s tax and customs union, noted, the FTT could enter into force in mid-2014 if agreement is found before the end of 2013, and there is a speedy transposition into national law by the participating states. Based on the performance of the E-11 to date, and the myriad of difficult issues which remain outstanding, fulfilling both pre-conditions seems highly unlikely, if not impossible.
In summary, the FTT is looking less and less likely to become law in the next 12 months. This month’s Federal elections in Germany will only serve to delay matters further, as Angela Merkel is embroiled in national political matters, with the FTT falling further down her list of priorities. In the event that a resolution is reached on the FTT, mid-to-late 2015 is a much more realistic timeframe for its implementation than any time in 2014. However, what form the tax (if any) will take by then, is anybody’s guess.