Alternative Investment Management Association Representing the global hedge fund industry
In September 2011, the European Commission issued a Proposal for an EU-wide Financial Transaction Tax (FTT) Directive, at 0.1% for transactions in bonds and equities, and 0.01% for derivatives transactions (on notional value) and with effect from January 2014.
The proposed FTT included these features:
After protracted negotiations and discussions among Member States, by June 2012 and absent unanimous approval for the FTT , alternatives including introducing FTT by ‘Enhanced Cooperation Procedure’ (ECP) among a minimum nine States began to be explored. In October 2012, the Commission published a draft proposal, supported by 10 States, to implement a FTT in broadly similar terms to that proposed in 2011 and to be effective at some point in 2013.
That proposal was debated by the Council and authorised in February 2013, to allow FTT to be implemented by several EU Member States rather than on an EU-wide basis. The Council working group on taxation has since met several times to analyse the proposal. The working group allows all Member States to present opinions and concerns, although only those involved in the ECP are entitled to vote on the proposal (the vote must be unanimous).
In the Commission’s view, a common FTT applying among a group of Member States would be “both timely and beneficial”; “ensure a fairer contribution from the financial sector to the public purse”; “create a more level playing field between the financial sector and other sectors in covering the costs of the crisis”; and “make financial markets more efficient, by steering them away from casino-type trading to more stable activities which support the real economy”. Although 11 Member States are now supportive, any other may join at a later stage (under the same conditions as apply to those who participate from the outset).
The proposal includes design features, such as an “issuance principle” (to apply to instruments issued in the common FTT area or derived from securities based in that area) – which would ‘catch’ transactions linked to a participating country (even if counterparties and the traded instrument are outside the participating country). A "residence principle" is also included. Most equity, debt and derivative instruments would be in scope, where there is an "established link" to the FTT "zone"; a link between the economic substance of a transaction and a zone jurisdiction is required.
AIMA is tracking the ECP proposal closely and attends the UK’s HM Treasury update meetings and meetings of a number of associations.
AIMA published a report (February 2012) on the likely impact of a EU-wide FTT and submitted evidence to the UK’s House Of Lords European Union Committee. That committee concluded, in a report of May 2012, that the Commission had failed to make a case for an EU-wide FTT (it found also that such a FTT was likely to fall disproportionately on a minority of EU Member States, and especially the UK, which could account for approximately 71% of overall revenue raised; the committee was also not able to identify any genuine link between EU policy objectives and a FTT).
European Commission proposal for FTT by ECP (October 2012)
European Commission Consultation on financial sector taxation (February 2011)
House of Lords feasibility report on FTT (March 2012)