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Alternative Investment Management Association Representing the global hedge fund industry

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Financial Transaction Tax

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:

  • wide scope, capturing a broad range of financial transactions where at least one party is established in an EU Member State and either that party or another is a financial institution; and
  • financial transactions included the purchase and sale of any ‘financial instrument’ (shares, bonds, notes, units and including repos and stock lending) and concluding or modifying derivatives.

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).

 


 

Key legislative documents

European Commission proposal for a Council Directive implementing enhanced cooperation in the area of financial transaction tax (February 2013)

European Commission proposal for FTT by ECP (October 2012)

European Commission proposal for a Regulation on the methods and procedure for making available the own resource based on the financial transaction tax (November 2011)

European Commission Proposal for a Directive on a common system of financial transaction tax (September 2011)

 


Consultation documents

House of Lords' Call for Evidence: towards a financial transactions tax? (October 2011)

European Commission Consultation on financial sector taxation (February 2011)


AIMA documents

Financial transaction tax, the impacts and arguments - Literature review by PwC commissioned by 27 European business associations including AIMA (November 2013)

Summary - FTT by ECP - European Commission proposal adopted 14 February 2013 (March 2013)

Research - Assessing the competitiveness of the European Commission's proposed Financial Transaction Tax (January 2012)

Response to House of Lords' Call for Evidence: towards a financial transactions tax? (November 2011)

Response to European Commission's consultation on financial sector taxation (April 2011)


Other relevant documents

European Commission website on financial sector taxation

House of Lords feasibility report on FTT (March 2012)

European Commission Impact Assessment - Executive Summary and Full Report (September 2011)

Budget for Europe Part I and Part II (June 2011)

All written submissions to House of Lords

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      5. Venture Capital
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