A draft report on a Europe-wide financial transaction tax (FTT) for bonds, shares and derivatives will be put forward in the European Parliament’s Economic and Monetary Affairs Committee (ECON) next week.
The draft report on enhanced cooperation on the FTT will be presented during an ECON session on Wednesday by Greek MEP Anni Podimata, from the Group of the Progressive Alliance of Socialists and Democrats.
Although this marks the next step in crafting a European FTT into law, the report is expected to have no details of the tax itself, rather it lets ECON begin work on it within the European Parliament.
Last month, eleven EU countries agreed to support the creation of the FTT, which is expected to be based on a French tax introduced in August, which taxes 0.1% on equities transactions and 0.01% on derivatives, although further details are expected by the end of the year.
If a Europe-wide FTT is created on the French model, instead of taxing financial institutions, it will hit end investors and could be sidestepped through trading in alternative instruments, which data has shown has been occurring in France since August. Single-stock futures in French stocks jumped nearly 250%, year-on-year, with September figures rising from US$0.7 billion in 2011 to US$2.4 billion in 2012 as institutional investors in France increased derivatives exposure to avoid the FTT on equities, according to data from investment bank Credit Suisse.
The derivatives let investors gain synthetic exposure to underlying stocks without incurring the tax. The strategy is also common among investors that want to avoid UK stamp duty.
Instruments including contracts for differences, exchange-trade funds, futures, swaps or duel-listed stocks could be used by traders to avoid the tax, while new asset classes could be created to bypass the tax completely, experts have warned. However, traditional long-only asset managers who are not mandated to use such instruments may simply have to absorb the added fee.
The 11 countries which threw support behind the scheme at a 9 October meeting in Luxembourg were Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Spain and Slovakia.