The reported row back of a proposed European financial transaction tax (FTT) under development by 11 EU member states may be just the start of its overhaul, a tax expert at buy-side trade body the Investment Management Association has said.
Yesterday, sources close to the tax’s technical development suggested it may bring in only €3.5 billion if the levy on equities is dropped to 0.01% from the European Commission’s original proposed 0.1% level, a tenth of the €35 billion initially calculated. Taxes on bonds and derivatives trades, initially proposed at 0.1% and 0.01% respectively, may also drop, and could be implemented years after a levy on equity trades comes into force.
Speaking to theTRADEnews.com, Jorge Morley-Smith, head of tax for UK buy-side trade body the Investment Management Association (IMA) said the tax would likely change significantly from the Commission’s proposal, adding that momentum for the FTT would likely occur after Germany’s September elections.
Despite the mooted reduction in the rate equities would be taxed, Morley-Smith warned policymakers may look to increase the levy on equities as they are easier to tax, which would adversely affect the buy-side.
“Member states may limit the tax to equities in an attempt to salvage the proposal to avoid impacting the EU sovereign debt market, but there is a risk for the buy-side as savings products may be taxed at a higher rate,” he said.
Morley-Smith said growing concern over the FTT’s impact on the repo market and possible exemptions for pension funds would also become key issues as the tax develops.
“It’s too early to say what effect the tax will have on specific instruments, but it’s clear the tax will be paid for by EU citizens, which runs contrary to the Commission’s initial proposal,” he said.
A spokesperson for the Commission could not confirm whether the changes suggested in yesterday’s media reports had been officially tabled, but said discussion between the 11 EU member states was continuing. Supporting states are developing the tax through technical working groups before political-level discussion takes place between EU finance ministers in the Council of the European Union.
The Commission confirmed that the Irish Presidency of the Council of the European Union had not added the FTT to its agenda for June’s ECOFIN meetings. Lithuania will take over the presidency from July, and if it prioritises the FTT it could potentially meet 2014 implementation.
Recent efforts to develop a pan-European FTT began in October, after EU finance ministers agreed to revive a September 2011 proposal from the Commission, which failed to gain adequate support from the 27 EU member states. The 11 pushing for the tax include France and Germany, but not the UK – the region’s leading financial centre.
The tax has attracted widespread criticism for its global scope, which would tax equity, fixed income and derivative transactions by market participants based in any of the 11 member states, or instruments issued within those states, regardless of where they are traded.