EU Parliament had been calling for a financial transaction tax (FTT) for nearly two years and, unsurprisingly, it has adopted last week the proposal drafted by the Commission. One of the arguments that prevailed in the debate that took place at the Parliament and resulted in the adoption of the financial transaction tax proposal was that “the FTT is an integral part of an exit from crisis. It will bring a fairer distribution of the weight of the crisis” (rapporteur Anni Podimata).
The EU follows therefore the general opinion prevailing in member States that increasing taxation is the best way out of the economic and debt crisis. This is neither very original nor very discerning, as we argued many times before (for example here, here and here).
The tax rates proposed by the Commission (0.1% for shares and bonds and 0.01% for derivatives) were considered suitable by the Parliament. Pension funds should be the only sector exempted from the tax. The adopted text adds to the Commission’s proposal an “issuance principle”, whereby financial institutions located outside the EU would also be obliged to pay the FTT if they trade securities originally issued within the EU. On the other hand, shares issued outside the EU but subsequently traded by at least one institution established within the EU would also be taxed. Moreover, the text links payment of the FTT to the acquisition of legal ownership rights, meaning that a buyer of a security who would not pay the FTT, would not be legally certain of owning that security.
The deadline for Member States to adopt implementing laws is 31 December 2013. Entry into force of these laws is scheduled 31 December 2014. Anticipating some difficulties, the Parliament decided that the tax should go ahead even if only some Member States opt for it. According to the reporter Anni Podimata, the “FTT will not lead to relocation outside the EU because the cost of this is higher than paying the tax”. This remains to be seen.