Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


France is going one step further with the Tobin tax project

On February 16th, 2012 the French Parliament has adopted its version of the so-called Tobin tax; a version that, some says, is partially based on the stamp tax levied in the City. The tax, to be effective August 1st, will be levied on all transactions involving equities from a French company if the capital of that company exceeds €1 billion and regardless of the place where the transaction is carried out. Hence, the tax concerns some 100 French companies publicly traded. Its rate is fixed at 0,1%.

The same law has introduced another tax with a smaller rate, 0,01%, to be levied on naked sovereign CDS and high-speed trading. Last November, however, the EU Parliament had already banned the buying of CDS on government bonds unless the buyer already owns the sovereign debt or some other assets whose prices are linked to the sovereign debt. This EU law being effective November 1st 2012, chances are that the part of the new French law related to naked sovereign CDS will never be enacted. As for the taxation on high-frequency trading, if it satisfies the layman, experts have warned against such taxation. “Should high-frequency trading firms leave, they will remove the liquidity and efficiencies they have delivered to the marketplace, making European equities substantially less competitive. This will mean bid/offer spreads will widen, fees will go up, and it will become harder and more expensive for everyone – from the retail investor to the pension fund manager – to trade. », says Will Rhode, senior analyst at Tabb Group, in an online article of the Financial News dated 19 December 2011. (available at http://www.efinancialnews.com/story ...).

The French Ministry of Budget expects to collect more or less €1 billion from this new taxes.

Surely President Sarkozy must be proud that France is ahead of the race to tax financial transactions—a tax which, by the way, is as old as finance itself—and he hopes other EU countries will join soon (which should open the door to further taxation). Actually, Germany, Italy, Austria, Belgium, Spain, Finland and Portugal have recently called for a speeding of the process to enact an EU tax on such transactions.

Government bonds are, of course, not concerned by this tax, which outrages representatives of the French business community.

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