A Europe-wide financial transaction tax (FTT) came a step closer to fruition Thursday as the European Parliament’s Economic and Monetary Affairs Committee (ECON) agreed to move forward on a report outlining cooperation in the single market.
As a result, details are expected to emerge early next year when the European Commission fleshes out the draft legislation for the tax.
The draft recommendation report discussed in the ECON committee Thursday sets next Tuesday 20 November as the deadline for amendments and 29 November for a subsequent vote. An MEP plenary vote is outlined for December.
The procedural report does not contain details of the FTT but establishes the framework for ‘enhanced cooperation’ between member states, giving consent to begin the legislative procedure. The Council of the European Union must then approve the authorisation by majority vote, before the Commission puts forward its revised proposal for an FTT, which will be the substance of the tax.
Greek MEP Anni Podimata, rapporteur for the report and member of the Group of the Progressive Alliance of Socialists and Democrats, will push for the tax. Sources inside Parliament believe details of the final tax will not differ significantly from the EC’s September 2011 proposal and they are expected to mirror the French FTT that came into force in August.
Under the French model, equity transactions are taxed at 0.1% and derivatives at 0.01%, although recent data has shown a migration by institutional investors to instruments that evade the tax, such as single-stock futures.
On Tuesday, German finance minister Wolfgang Schaeuble indicated the 11 EU nations that supported establishing an FTT could grow with the addition of the Dutch, who signalled they would support the tax depending on certain criteria.
Although the idea for the tax has been around for several years following the financial crisis, an October meeting of finance ministers in Luxembourg saw 11 EU nations support a Europe-wide FTT.
The European Commission’s September 2011 proposal for the tax referred to the public bearing the cost of errors in the financial sector, but experts believe the end cost of any FTT will ultimately be borne by end investors, not financial institutions. Coupled with the fact institutional investors can trade in instruments which can evade the tax, this brings into question the effectiveness of such a taxation structure at a time when European trading volumes are experiencing sustained lows.