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BackYesterday, Thursday, EU Commissioner Algirdas Šemeta, responsible for taxation and customs union, audit and anti-fraud, presented the new proposal of the European Commission for a common Financial Transaction Tax (FTT), which concerns in particular those 11 Member States, which based on “enhanced cooperation”, urge the implementation of the original Commission proposal from September 2011, among them also Austria. Following the authorisation of this “Coalition of the Willing“ by the EU Council of Finance Ministers on 22 January 2013, the Commission is now proposing a Directive, which is largely based on the old proposal and can be considered as a significant step towards tackling speculative financial instruments. The participating EU Member States hope to generate an income of about EUR 34 billion. The remaining 16 EU countries have the option of implementing the FTT at a later stage.
AK and ÖGB have been fighting for the introduction of a Financial Transaction Tax for years. This tax was not only supposed to curb financial speculation, but also to involve the financial sector in the costs of the financial and economic crisis, which also bore significant responsibility for it. It is the position of the AK to structure such a tax as broadly as possible to include all financial transactions. The proposal by the EU Commission presented on Thursday, reflects some of these demands. The Directive proposal intends to make financial services more secure and to ensure a unified European approach regards taxation of financial transactions, including the prevention of distortions of competition. The Commission does also not beat about the bush regarding its analysis of the financial and economic crisis: the financial sector had been a significant contributor to the crisis and generated high profits during the last two decades, based on tax exemptions and ill-designed financial market regulations. Following the fact that until now public budgets and citizens have been footing the bill for the costs of the crisis to a large extent, the time had now come to take a harder line in respect of the currently under-taxed sector of financial transactions.
Content of the new Directive
The current Commission proposal for a FTT is largely based on the previous Directive proposal of the Commission dating from 2011. The most significant change is that the new proposal also includes the amendment requested by the European Parliament to add the “issuance principle” to the “residence principle”. A financial institution outside the territory of the participating state (e.g. resident in Great Britain), which concludes a financial transaction with a party within the territory, is now treated in the same manner as if this institution was also resident in the territory of a participating country. This double protection makes territorial shifts of financial transactions in order to avoid tax far less attractive. In order for a financial transaction to be come liable for taxation, it will be sufficient if one of the participating parties has its place of residence in the territory of the participating state. Apart from that, the following also applies: if a financial instrument is “clearly associated” with a Member State participating in the FTT, i.e. if the financial instrument was originally issued in this state (“issuance principle”), however, if none of the parties participating in the current financial transaction resides in the territory of this state, the FTT is due nevertheless. If for example a Chinese bank in New York sells an Austrian government bond to an American financial actor, tax would have to be levied.
As already announced in the 2011 Commission proposal, the tax rate shall be set at 0.01 % of the nominal value for derivatives and 0.1 % for all other transactions. The FTT shall be levied as a kind of “Value Added Tax” on financial transactions and securities transactions between two actors in the financial market and generate an income for the public budgets of the participating Member States. The participating states (Germany, France, Austria, Belgium, Estonia, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) amount to about two thirds of the European gross domestic product, whereby the remaining EU Member States are free to join this new tax cooperation at any time – whether before the forthcoming resolution in the EU Council of Ministers or after its implementation in 2014. The states will able to raise these tax rates in future; however, they shall not introduce any other or additional taxes for transactions.
The FTT does not only concern those instruments, which are traded on official markets, such as stock exchanges, but also so-called “Over-the-Counter transactions”, i.e. transactions between two private parties, which until now were undertaken outside the stock market: these transactions, which amount to 70 % of the derivatives market, which is worth billions, shall now become subject to registration and have to be cleared resp. processed via an intermediary, which makes taxation only possible in the first place. Transactions involving the ECB, Euro rescue packages and the issue of government bonds are exempt from the FTT as are foreign exchange spot transactions, whereby originally the majority of the EU Parliament wanted to include the latter in the scope of the FTT. Most everyday financial transactions by citizens and enterprises, such as insurance agreements, consumer loans, credit card services or mortgages expressly do not express a financial transaction within the meaning of the Directive.
Summary
According to the Commission proposal, the participating states shall make an effort to implement the Directive at national level by the end of September 2013 (national legislations, administrative requirements, etc.) to enable the common FTT to come into force by 1 January 2014. The date was feasible as it was only the down to the 11 states, how quickly these implementation processes would advance. In particular, some technical details have still to be clarified and the participating states must still unanimously pass the tax in the EU Council of Ministers , which of course harbours the risk of attempts being made to water it down. The European Parliament, which vehemently pushes for its implementation, has no longer a formal say; however, it is continuously being consulted and is still involved. Nevertheless, the Commission proposal can already be regarded as a significant success for the progressive forces within the European Union, which will – according to an estimate of the EU Commission – add about EUR 34 billion to the strained budgets of the cooperating Member States. In view of the fact, that so far above all European employees and citizens have been footing the bill of the financial and economic crisis by having to cope with austerity budgets, pension and wage cuts and other austerity measures, the Directive of the Commission, which was presented on 14 February – in respect of its analysis of the economic situation as well as the concrete implementation of the FTT – seems to indicate at least a paradigm shift. It will be interesting to see how the respective discussions at European level will proceed in the coming weeks.
Further information:
Directive proposal of the European Commission
Press information of the European Commission
Content of the new Directive
The current Commission proposal for a FTT is largely based on the previous Directive proposal of the Commission dating from 2011. The most significant change is that the new proposal also includes the amendment requested by the European Parliament to add the “issuance principle” to the “residence principle”. A financial institution outside the territory of the participating state (e.g. resident in Great Britain), which concludes a financial transaction with a party within the territory, is now treated in the same manner as if this institution was also resident in the territory of a participating country. This double protection makes territorial shifts of financial transactions in order to avoid tax far less attractive. In order for a financial transaction to be come liable for taxation, it will be sufficient if one of the participating parties has its place of residence in the territory of the participating state. Apart from that, the following also applies: if a financial instrument is “clearly associated” with a Member State participating in the FTT, i.e. if the financial instrument was originally issued in this state (“issuance principle”), however, if none of the parties participating in the current financial transaction resides in the territory of this state, the FTT is due nevertheless. If for example a Chinese bank in New York sells an Austrian government bond to an American financial actor, tax would have to be levied.
As already announced in the 2011 Commission proposal, the tax rate shall be set at 0.01 % of the nominal value for derivatives and 0.1 % for all other transactions. The FTT shall be levied as a kind of “Value Added Tax” on financial transactions and securities transactions between two actors in the financial market and generate an income for the public budgets of the participating Member States. The participating states (Germany, France, Austria, Belgium, Estonia, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) amount to about two thirds of the European gross domestic product, whereby the remaining EU Member States are free to join this new tax cooperation at any time – whether before the forthcoming resolution in the EU Council of Ministers or after its implementation in 2014. The states will able to raise these tax rates in future; however, they shall not introduce any other or additional taxes for transactions.
The FTT does not only concern those instruments, which are traded on official markets, such as stock exchanges, but also so-called “Over-the-Counter transactions”, i.e. transactions between two private parties, which until now were undertaken outside the stock market: these transactions, which amount to 70 % of the derivatives market, which is worth billions, shall now become subject to registration and have to be cleared resp. processed via an intermediary, which makes taxation only possible in the first place. Transactions involving the ECB, Euro rescue packages and the issue of government bonds are exempt from the FTT as are foreign exchange spot transactions, whereby originally the majority of the EU Parliament wanted to include the latter in the scope of the FTT. Most everyday financial transactions by citizens and enterprises, such as insurance agreements, consumer loans, credit card services or mortgages expressly do not express a financial transaction within the meaning of the Directive.
Summary
According to the Commission proposal, the participating states shall make an effort to implement the Directive at national level by the end of September 2013 (national legislations, administrative requirements, etc.) to enable the common FTT to come into force by 1 January 2014. The date was feasible as it was only the down to the 11 states, how quickly these implementation processes would advance. In particular, some technical details have still to be clarified and the participating states must still unanimously pass the tax in the EU Council of Ministers , which of course harbours the risk of attempts being made to water it down. The European Parliament, which vehemently pushes for its implementation, has no longer a formal say; however, it is continuously being consulted and is still involved. Nevertheless, the Commission proposal can already be regarded as a significant success for the progressive forces within the European Union, which will – according to an estimate of the EU Commission – add about EUR 34 billion to the strained budgets of the cooperating Member States. In view of the fact, that so far above all European employees and citizens have been footing the bill of the financial and economic crisis by having to cope with austerity budgets, pension and wage cuts and other austerity measures, the Directive of the Commission, which was presented on 14 February – in respect of its analysis of the economic situation as well as the concrete implementation of the FTT – seems to indicate at least a paradigm shift. It will be interesting to see how the respective discussions at European level will proceed in the coming weeks.
Further information:
Directive proposal of the European Commission
Press information of the European Commission