* Investors, insurers say tax will hit savers
* Lawyer warns of double, multiple taxation
* Austria's Fekter welcomes plan to boost coffers
By Huw Jones
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, a step
investors said would hit savers and pension pots.
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.
Critics said the tax would cut trading volumes, reduce the
pensions of future retirees and could lead to double taxation on
The plan was requested by 11 countries representing
two-thirds of EU economic output that 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 foundered 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 targeted transactions,
which will not include foreign exchange trading, 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.
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
their agreement 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.
Austria's finance minister Maria Fekter backed the plan,
saying she expected the levy to raise "at least" 500 million
euros a year for her country's coffers.
Pension funds will come under the tax's scope, but the cost
will be "extremely limited" if their turnover in shares is low,
But Jorge Morley-Smith, head of tax at Britain's Investment
Management Association, said the plan was a tax on pensions and
"Potentially, the impact could be devastating in reducing
activity ... and could erode up to six out of every 30 years'
worth of contributions to an actively managed retirement savings
plan," Morley-Smith said.
Stock lending could also become uneconomical because the
average fee is less than the planned tax on it, he added.
Insurance Europe, which represents the bulk of the bloc's
insurance sector, said the tax would harm savings products at a
time when people should be encouraged to save for retirement.
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" that 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.
A tax in just 11 countries could lead to double or multiple
taxation elsewhere, said Ben Jones of Eversheds law firm.
The London Stock Exchange, which trades shares from many of
the FTT countries, already imposes a stamp duty.
Semeta told a news conference the tax complied with
international tax laws and he could take action to deal with
double taxation if the issue arose.
A European Commission analysis said it "will not be possible
to avoid all incidents of double taxation within the entire
EU27". The anti-avoidance provisions, while still being "very
powerful" will also be a "little bit less effective" than if the
tax was levied across the bloc, it added.
Banks are already looking at ways to avoid the tax.
"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 and will have no 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.