UK and International Tax news
Financial Transaction Tax Update
Tuesday 25th June 2019
On 14 June 2019 Ecofin announced an update on progress with the financial transaction tax on the basis of a note by Germany which refers to an option of an FTT based on the French model of the tax and about the possible mutualisation of the revenues among the participating member states as a contribution to the EU budget.
A tax on the financial sector has been under discussion at European level for many years. As far back as 2011, the EC proposed a harmonised FTT for EU member states. However, the proposal did not secure a majority at EU level and from 2013 deliberations on the introduction of an FTT continued in the framework of enhanced cooperation with 11 member states, Austria, Belgium, Estonia (until December 2015), France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
Following the lack of a breakthrough in the negotiations on the FTT, Germany and France decided at their meeting in Meseberg on 19 June 2018 to inject new momentum into the stalled negotiations and set themselves the objective of successfully concluding the negotiations at EU level.
In January 2019, Germany and France fleshed out their plans and presented a joint position paper. This proposed a French-style FTT be levied on the acquisition of shares of listed companies whose head office is in a member state of the EU and whose market capitalisation exceeds EUR1bn on 1 December of the preceding year.
The tax should be levied on the transfer of ownership when shares of listed public limited companies are acquired. Initial public offerings, market making and intraday trading should not be taxable. The tax rate should be no less than 0.2%.
The revenue should flow into the EU budget or the still-to-be-created euro area budget. Revenue levied nationally should be distributed among the member states according to a distribution mechanism to be further defined.
In March 2019 finance ministers of the states participating in the enhanced cooperation in this area agreed that the FTT should continue to be negotiated according to the Franco-German proposal. There was also agreement that the revenue generated should be distributed by way of a compensation mechanism among those states wishing to introduce the tax. Discussions are still ongoing as to what specific form this should take.
While all member states participate in deliberations, the adoption of a directive will require unanimous agreement of the participating countries within the Council, after consulting the European Parliament.
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