Parliament adopts ambitious approach on financial transaction tax

Discussion in 'Economics' started by doublechin, May 23, 2012.


    <b>Parliament adopts ambitious approach on financial transaction tax</b>
    PLENARY SESSION Taxation &#8722; 23-05-2012 - 12:38

    The proposed financial transaction tax should be better designed to capture more traders and make evasion unprofitable, said the European Parliament in its opinion adopted on Wednesday. The opinion also says the tax should go ahead even if only some Member States opt for it.

    The tax rates proposed by the Commission (0.1% for shares and bonds and 0.01% for derivatives (<b>+10EUR per Eurex 1 lot trade</b>)) are considered suitable and pension funds should be the only sector exempted from the tax.

    Parliament has been calling for a financial transaction tax (FTT), for close to two years and the Commission tabled a legislative proposal for one late in 2011. The latest Eurobarometer survey shows that 66% of Europeans favour such a tax.

    Rapporteur Anni Podimata (S&D, EL) during the debate said, "The FTT is an integral part of an exit from crisis. It will bring a fairer distribution of the weight of the crisis. This FTT will not lead to relocation outside the EU because the cost of this is higher than paying the tax.".

    A wider net

    <b>The adopted text adds to the Commission proposal an "issuance principle", whereby financial institutions located outside the EU would also be obliged to pay the FTT if they traded securities originally issued within the EU.</b>

    For example, Siemens shares, originally issued in Germany and traded between a Hong Kong institution and one in the US would have to pay the tax. Under the Commission's proposals, such transactions would have escaped the tax, because only financial institutions based within the FTT zone would be subject to it.

    The "residence principle" proposed by the Commission is also kept, which would mean that shares issued outside of the EU but subsequently traded by at least one institution established within the EU would be caught.

    Tackling tax evasion

    The resolution also raises the stakes to make evading the FTT potentially far more expensive than paying it. Taking the UK stamp duty approach, the text links payment of the FTT to the acquisition of legal ownership rights. This means that if the buyer of a security did not pay the FTT, he or she would not be legally certain of owning that security. As FTT rates would be low, this risk is expected to far outweigh any potential financial gain from evasion.

    Preferably EU-wide, but possibly less

    If it is not possible to establish the tax throughout the EU at the outset, enhanced cooperation should be envisaged, the resolution says. However, it also recognises that introducing the tax in a very limited number of Member States could lead to the single market being undermined and that measures should therefore be taken to prevent this. Ms Podimata said "With the EU having the largest financial market, it is up to us to make the first step. We cannot b held hostage by a handful of Member States".

    Pension funds

    Various exemptions were requested by a number of MEPs. In the end the most substantive exemption was that granted to pension funds, which would see the tax waived on their transactions.

    Other important points

    The opinion does not request that the revenues from an FTT be transferred to the EU budget. It does indicate that if the revenues are placed into the EU budget then this would reduce national contributions to the budget; The rapporteur says that such contributions could be reduced by up to 50%.

    The opinion maintains the Commission proposal timetable: 31 December 2013 deadline for Member States to adopt implementing laws and 31 December 2014 for entry into force of these laws.

    The opinion maintains the original proposal to exempt transactions made on the primary market (i.e. purchasing of securities from the issuer when such securities are first placed on the market). This would ensure that investments of benefit to the real economy would not be taxed.

    The opinion was approved with 487 votes in favour, 152 against and 46 abstentions.

    Procedure: Consultation
    REF. : 20120523IPR45627
  2. UK has stamp duty at 0.5%, and someone correct me if im wrong, but pension funds are not exempt from UK stamp duty?

    I would think a large chunk of the $5 billion per year raised from the UK stamp duty is from large pension funds.

    The EU is proposing a 0.1% tax rate which is a fraction of the uk's 0.5%, and also exempting one of the biggest payers of the share based FTT.

    So how do they think this tax will raise any money?.. they must think derivatives wil raise them billions, because stock transactions, with all these exemptions, certainly wont.

    But derivatives can be issued anywhere in the world therefore bypassing their 'issuance principle'.

    I dont think they really have a clue about what they are proposing, and i dont think they really care. This tax proposal just seems to be an attack on hedge fund trading and short term speculation by the socialists in europe.
  3. Eurex is based in switzerland so one would hope they dont get directly hit by the european FTT.

    But some of the traders who trade on this exchange could get hit under the residence principle if they are based in one the countries that imposes an FTT on its residents.
  4. Interesting, but it is also regarded as an exchange under German Public Law maybe they could shuffle things around but the bond suite is still issued in Germany

    I assume the likes of CME would make a non deliverable indicative bund which would give the most accurate pricing of the market while the pension funds can still execute the deliverable future. Of course there would be no HFT arb between the two at that rate
  5. pbb


    Correct me if i'm wrong, but for a fdax future that would be €16,-. I am not à market maker or very active scalper but 30 futures a day is something that happens a lot and many times more when trading multiple contracts. That would be 10k per month.... So, ask eurex gently to move to Swiss and get your bags and move to either Swiss or Gibraltar?

    Maybe I'm a pussy complaining about 10k in some eyes here at elitetrader, but for me 10k per month is serious money and the worst part is: it won't end with the FTT. You can count on that.
  6. The consequences of this tax will be draconian and they will be forced to capitulate. It is insanity.
  7. Hopeless approach....

    A reasonable transaction tax would be putting a sales tax on the exchange fees. ie.. CME charges $1 per turn... tax these fees at 6% and collect them directly from the exchange.
  8. pbb


    Add a little to the exchange fees and nobody will walk ( except hft), the combined fees at brokers already exists of broker/exchange and tax fees. In what I've read so far my fees would be x10+ and that's like going back to the 80's.... Maybe I should vote for some anti-EU party next elections. I don't like that, but hè... I am thinking of me and my family.

    There are two major things going on right now in my country, rejecting eurobonds or rejecting transaction tax. Which one do you think the politicians would shoot when they have to choose for their polls?
  9. In the short run, this isn't about tax rates. The EU taxocrats will agree to any tax rate that casts the FTT net as broadly as possible. Their strategy has two steps:

    step1 -- short term strategy: implement a broad FTT with very low rates to bring in as many countries as possible;

    step 2 -- long term strategy: raise the rates as high as possible.

    Here's what EU Tax Commissioner Algirdas Semeta said about the tax rate-setting strategy: "The moment in which we introduce a tax on financial transactions on a global level, of course, everything looks different. Then we can also raise the tax rates."
  10. <b>EU financial transaction tax could cost 50,000 City jobs</b>
    The Sunday Times reported that the EU Commission’s own assessment of their proposed financial transactions tax states that around 70 to 90% of derivatives trades and 10% of securities trades would leave the EU and that 0.03% of all EU jobs would be lost. The paper concluded that, as Britain is home to about 75% of EU financial trades, the tax would lead to the loss of 50,000 jobs in the City and among support staff across the country.

    Kill some business and lose some jobs, good plan.
    #10     May 24, 2012