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Financial Transactions Tax Greenlighted by EU - But No Unanimous Vote

Financial Transactions Tax Greenlighted by EU - But No Unanimous Vote
24 Jan 2013

First Published by bobsguide, 23 January 2013

A group of 11 European Union (EU) countries have given the go-ahead to proceed with the introduction of a financial transactions tax (FTT), despite the opposition of other EU members including the UK.

The European Commission (EC) originally aimed for all 27 EU member states to adopt the FTT, but the plan was blocked by the UK on fears its impact on the City of London trading hub, Europe's biggest financial centre, while several other countries were concerned that it would lead investors to switch trades to the US or Asia.

Trading in London will still be affected, as the levy can be imposed regardless of where a transaction takes place if either the buyer or seller is based in one of the 11 countries imposing the tax.

The countries backing the 'Tobin-style' FTT, also dubbed the 'Robin Hood tax' in Europe, are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. The Netherlands might also lend its support, despite the FTT being opposed by its central bank, De Nederlandsche Bank (DNB). The tax would impact the profitability of trading and perhaps stall the large technology investments of recent years in algo trading and other volume-lead trading strategies.

Taxand, the specialist tax advisory firm to multinational corporations (MNCs) warned that the FTT spelled uncertainty for major companies.

"While supporters of the FTT will see the recent approval from 11 EU countries as a major coup, MNCs - specifically those in the financial services arena - will view these developments with concern, not only due to the lack of clarity on implementation, but also because of the potential for a distinctly unlevel playing field for trading across the continent," said its chairman, Frederic Donnedieu de Vabres.

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Taxand's Take

"As things stand there is a striking lack of guidance on both the rate and scope of the new levy, leaving the financial sector in the dark as to how they might structure their equity, bond and derivative trading operations going forward.

The implementation of the tax will also result in a trading dichotomy across Europe. As things stand, financial hubs such as Frankfurt, Paris and Madrid will be affected by the tax, with other centres of trading, including London, seemingly gaining a significant advantage through their resilience in not signing up to the agreement.

What is clear is that implementation, in whatever form it finally takes, could have serious consequences for the overall competitiveness of Europe as a global hub for financial services. The lack of consistency in the taxation of trading could lead MNCs to avoid the continent altogether, instead looking to the US or Asia."

Taxand's Take Author