Financial Transaction Tax – final decision in June?

Negotiations on the home stretch

Efforts regarding the introduction of a Financial Transaction Tax (FTT) in 10 EU Member States (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) are finally approaching the home stretch. After the last disagreements have been resolved and a compromise has been found, adopting the FTT is now only waiting for the approval of the new government in France. The new French Minister for Economic and Financial Affairs Bruno Le Maire wants first to familiarize himself with the issue before agreeing to the FTT.

A compromise has been achieved – Waiting for France

At last it has been possible to achieve a compromise with Belgium and Slovakia, both of whom wanted derivatives in the field of pension and insurance funds to be exempt from taxation. That there is still no agreement in May is the result of the new government in France. One can only hope that France does not have a change of mind. However, this cannot be completely ruled out: after all Prime Minister Macron was an investment banker before he became a politician.

What should be taxed?

Basically, all financial transactions should be taxed. The tax is in particularly aimed at the so-called high-frequency trade, where securities are bought and sold at microsecond level. This type of trading also exploits minute price difference with regard to shares and bonds. These transactions are normally conducted automated via special broker programme, which financial institutions have at their disposal. Some economists such as the recipient of the Nobel Prize in Economics Joseph Stiglitz criticise, that they not only interfere with the functioning of the markets, but also pose a threat to the stability of economy and society. According to all accounts, a tax rate of 0.1 % has been provided for trading with shares and bonds and a tax rate of 0.01 % for derivatives. Certain derivative transactions (such as so-called Repos, Repurchase Activities as well as transactions by Debt Management Agencies) are exempt from taxation. Derivatives linked to pension and insurance funds will now also not be subject to this tax.

Financial Transaction Tax from 2018?

If agreement in favour of the Financial Transaction Tax is reached in June, the European Commission will prepare a legislative text, which has to be adopted and implemented by the participating 10 Member States. The Draft Directive by the European Commission on the Financial Transaction Tax from February 2013 had intended to levy the tax from January 2014. However, because of numerous delays this did not come to fruition. One still has to wait and see whether it will be possible to introduce the FTT from January 2018.