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EC proposes financial transaction tax

10 October 2011
Issue: 4325 / Categories: News , Business , Companies , Income Tax
Plan could lead to market distortion, warns expert

The European Commission (EC) has presented a proposal for a tax that would be levied on all transactions on financial instruments between financial institutions when at least one party is located in the European Union (EU).

The exchange of shares and bonds would be taxed at a rate of 0.1%, and derivative contracts at a rate of 0.01%. The EC has proposed that the charge should come into effect on 1 January 2014 with the aim of:

  • ensuring the financial sector makes a fair contribution at a time of fiscal consolidation in the member states.
  • helping to strengthen the EU single market. Currently, ten member states have a form of a financial transaction tax in place. Harmonising the different existing taxes on financial transactions in the EU will help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises, says the commision.

The tax would be aimed at taxing the 85% of financial transactions that take place between financial institutions. Citizens and businesses would not be affected. House mortgages, bank loans, insurance contracts and other normal financial activities carried out by individuals or small firms would fall outside the scope of the proposal. 

Revenues would be shared between the EC and the member states.

David Newton, global financial services tax leader at PricewaterhouseCoopers, said the plans contained within the EC's draft directive were ‘a blow for financial institutions, markets and, indeed, consumers.

‘At a time when financial institutions are trying to build up their capital base, it seems counterintuitive to introduce a tax that would adversely affect this goal. Such a tax would affect consumers, as it would increase costs to investors in mutual funds in the EU, as well as in other consumer-based financial products.’

Mr Newton added that, as global accord on a financial transaction tax seemed remote, it would be ‘the EU that could suffer most, distorting financial markets’ as financial trading would move outside the union to avoid paying the levy.

Issue: 4325 / Categories: News , Business , Companies , Income Tax
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