The FTT remains a highly contentious proposal, not least in relation to its impact on non-participating states and the City of London. It has already been challenged once in the ECJ. The number of participating states has fallen, and the proposal could not proceed if two more states dropped out. The deadline for agreement has been put back again (to mid-2016). French Finance Minister Michel Sapin was recently reported saying the negotiations have reached a point of deadlock amid reservations from Belgium, Slovakia and Spain. Despite the publication of the core principles in December last year (see below), the fate of the FTT remains uncertain.
FTT core principles
In December 2015, ten of the Member States pursuing the adoption of the financial transaction tax (“FTT”) agreed on “core principles” for the FTT.
In a statement contained in EU Council meeting notes, amongst other principles, it was confirmed that with regards to shares: • all transactions, including intra-day transactions, should be taxed;
- there will be an exemption for agents and clearing members (when acting as facilitators);
- a narrow market making exemption might be required to sustain liquidity; and
- it is being determined whether the FTT will apply only to shares issued in the Member States participating in the enhanced cooperation procedure.
With regards to derivatives, it was confirmed:
- the territorial scope of the FTT should follow the European Commission’s proposal (being the application of the residence and issuance principles together with the counterparty principle);
- the tax should be based on the principle of the widest possible base and low rates;
- the cost of sovereign borrowing should not be impacted; and
- there should be no exemption for market making activities.
Estonia was the only Member State which previously supported the FTT not to make the statement. Estonia has announced that it no longer supports the FTT due to concerns that the revised proposals would not generate sufficient revenues for Estonia.
We have been following the development of the FTT since the second extended draft of the FTT Directive was proposed on 14 February 2013. Please find links to our previous articles below.