UK and International Tax news

EU Financial Transaction Tax

Friday 30th September 2011

The EC has presented a proposal for a financial transaction tax [FTT] in the 27 member states of the EU. The tax would be levied on all transactions on financial instruments between financial institutions when at least one party to the transaction is located in the 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 estimates that this could raise €57 billion annually.  It is proposed that the FTT should come into effect from 1 January 2014.

The EC has decided to propose the new FTT to ensure that the financial sector makes, what it considers to be, a fair contribution at a time of fiscal consolidation in the member states. It considers that the financial sector played a role in the origins of the economic crisis and governments and European taxpayers have borne the cost of massive taxpayer-funded bailouts to support the financial sector. The EC considers the sector is currently under-taxed by comparison to other sectors and their proposal would generate significant additional tax revenue from the financial sector to contribute to public finances.

Currently, ten member states have a form of a financial transaction tax in place. The EC proposal would introduce new minimum tax rates, harmonise different existing taxes on financial transactions in the EU, and help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises.

The EC considers that the FTT at EU level would strengthen the EU’s position to promote common rules for the introduction of such a tax at global level, notably through the G20.

The revenues from the FTT would be shared between the EU and the member states. Part of the FTT would be used as an EU own resource which would partly reduce national contributions. Member states might decide to increase the part of the revenues by taxing financial transactions at a higher rate.

The proposal will be discussed by all member states in the EU’s Council of Ministers and the EC will present it to the G20 Summit in November.

If you would like further information on the proposed FTT, please contact Keith Rushen on 0207 486 2378.

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