LONDON Feb 14 The European Union's executive
formally proposed on Thursday a tax on financial trading in 11
countries to raise up to 35 billion euros annually, saying it
was a first step to applying the levy across the whole bloc.
The European Commission set out how its financial
transaction tax (FTT), aimed at making banks pay for taxpayer
help they received in the financial crisis, would apply from
next January, the rate at which it would be set, and safeguards
to stop avoidance.
The plan was requested by 11 countries who represent
two-thirds of EU economic output and have already agreed to
voluntarily press ahead with the tax after the bloc's 16 other
members refused to back an earlier, pan-EU proposal.
Attempts to introduce a global "Tobin Tax", named after the
U.S. economist who devised a tax on transactions in the 1970s,
have also floundered due to U.S. opposition.
EU Tax Commissioner Algirdas Semeta said the bloc's
financial sector was "under-taxed" to the tune of 18 billion
euros ($24 billion).
"It lays the final paving stone on the road towards a common
FTT in the EU," he said in a speech to present his plan.
The Commission said 85 percent of the transactions targeted
take place between financial firms but if some costs were passed
on to consumers, this would not be "disproportionate".
"Any citizen buying, for example, 10,000 euros in shares
would only pay a 10 euro tax on the transaction," it said.
Pension funds will come under the tax's scope but the cost
will be "extremely limited" if their turnover in shares is low.
How to stop banks passing on their costs to professional and
retail customers is a much tougher question to address.
Member states will haggle over the plan, with changes likely
before it takes effect. Only the 11 countries have a vote and
must be unanimous for the plan to take effect.
The tax would be set at 0.01 percent for derivatives, and
0.1 percent for stocks and bonds.
Many of the plan's basic elements follow the discarded
pan-EU proposal but the anti-avoidance safeguards have been
beefed up and new exemptions added.
The new "issuance principle" means a transaction will be
taxed whenever and wherever it takes place, if it involves a
financial instrument issued in one of the 11 countries.
This is aimed at stopping trades moving out of the so-called
FTT zone to London or elsewhere and reinforces an earlier
"residence principle" which says if a party to the transaction
is based in the FTT area, or acting on behalf of a party based
there, then the transaction will be taxed regardless of where it
The Commission says the combination will remove incentives
to relocate trading though not everyone is convinced.
"The financial services industry is now mobilising very
quickly to think about strategic solutions to the FTT following
the adoption of the decision to go ahead," said Mark Persoff, a
financial services tax partner at Ernst & Young consultancy.
The safeguards may prove controversial for Britain, Europe's
biggest financial trading centre, but it will not be able to
stop the plan or have a vote to amend it.
The UK has already introduced a balance sheet levy on banks.
Chas Roy-Chowdhury, head of taxation at the ACCA, an
independent accounting body in London, said banks and brokers
will take no chances and create a "firewall" by offering
products that cannot be "tainted" by the tax.