Increasing Support for Transaction Tax Accompanied by Increasing Lack of Clarity
"Though the agenda for the G20 conference in Cannes has largely been hijacked by the pressing need to resolve instability in Greece and the Eurozone, the concept of a financial transaction tax remains a significant talking point, driven largely by support for the proposals from the G20 host, Nicolas Sarkozy.
"However, support for this tax is being propelled by a number of increasingly blurred and often political agendas. Whilst some see the potential fundraising as a quick-fix cure for the current woes in the European economy, others are mooting the tax as a longer term replacement for aid to support the developing world.
"What is clear is that a blanket international tax on financial transactions will undoubtedly hit certain countries and regions harder than others and could drive investment out of Europe, threatening financial centres such as London and instead pushing business to markets outside of the EU control.
"Whilst Sarkozy has gained support from German Chancellor, Angela Merkel, and other influential leaders across the globe, he has reached a stumbling block in the opposition received from both the UK and the US, who have shown concerns over the lack of international consensus needed to impose such a tax.
"The proposals still lack a structure or direction that would make implementation in any way realistic and a blanket tax of this nature still looks ill-thought out and compromises the bespoke tax systems that have been developed in individual countries.
"Importantly, the proposals currently do little to stop the tax ultimately being passed on to the clients of financial institutions. Whilst the EU has claimed that competition in the market will stop this, if the industry unilaterally agreed not to bear the brunt it is ultimately those who are already taking the strain of the economic crisis that will.
"This type of blanket tax is still too complicated to implement and would require a fundamental overhaul in country-specific tax policy. Without all countries buying-in to the proposals, Sarkozy will face a long and difficult road ahead."
Frederic Donnedieu de Vabres, Chairman of Taxand, the world's largest independent global organisation of specialist tax advisors to multinational businesses.
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