Macron speech: Yes to the Financial Transaction Tax and to a minimum tax rate on profits

On 26 September 2017, the French President Emmanuel Macron delivered a long awaited keynote speech on his visions regarding the future of the European Union. Hence, demands on tax policy were also at the centre of his speech.

Financial Transaction Tax, CO2 tax, minimum tax rate on profits

Macron makes a renewed case for the Financial Transaction Tax. Such a tax on financial transactions already exists in France, however with numerous exceptions. Derivatives for example are not included. According to Macron, the revenue shall flow into foreign aid. However, considerations regarding the creation of an EU-wide Financial Transaction Tax had already failed in 2013.

Currently 10 EU Member States are engaged in negotiations concerning the introduction of the tax. Most recently they had been placed on hold, especially because of France: it is Macron’s wish that those financial institutions, which are now moving their headquarters from London to Central Europe because of BREXIT, preferably make their decision in favour of France. From the point of view of the French government, a discussion on implementing the Financial Transaction Tax would be disruptive.

Apart from that, Macron comes out in favour of financing the EU budget via a dedicated EU tax from 2021. According to the French Premier, one could for example use an EU corporate income tax. However, a requirement would be to introduce a common lower and upper limit for corporate tax rates. Apart from that, an EU tax on carbon would be desirable to combat Climate change. Furthermore, the current CO2 prices (pollution rights) from € 25 to 30 would be far too low.

Are the proposals realistic?

The demands made by Emmanuel Macron are by no means new. Within the scope of the work in respect of the EU’s multiannual financial framework, the European Commission has already proposed several times the introduction of an EU tax instead of membership contributions by EU countries to finance the EU budget. Among other, EU officials have recommended the introduction of a Financial Transaction Tax, a CO2 tax or an EU corporation tax.

However, each time, these proposals failed in the competent EU Economic and Financial Affairs Council. Especially concerning taxes, all EU States have to agree; otherwise there will be no decision.

Not least for this reason, Macron’s demand is a welcome signal for example to end the tax competition to the bottom in respect of corporate taxes. However, the chance, that this will also be approved by the tax haven countries within the EU, is currently very slim.

A Financial Transaction Tax for all EU countries will probably not come into being – one of the reasons being that a group consisting of only 10 EU Member States has so far not been able to agree such a tax. However, it would be a chance if individual EU States would follow the example of France and implement a Financial Transaction Tax on a national basis. The inclusion of trade in derivatives and high frequency trade would be indispensable. In this respect also France has to adapt their FTT as soon as possible. However, even at national basis, one would need lengthy negotiations and political will in the individual EU countries to ensure that a tax on financial transactions becomes reality.