EU: Commission adopts new proposal for an EU financial transaction tax
Bob van der Made
As expected, the European Commission presented its new draft proposal for a Council Directive implementing a financial transaction tax (FTT) in 11 countries on February 14. The new proposal is largely based on the Commission's September 2011 proposal. It is similarly very wide in scope, both in terms of the types of transactions in scope and the financial instruments in scope. The proposal retains the approach of applying the tax to transactions involving a financial institution and placing the liability for the tax on all financial institutions involved in a transaction. The principal changes to the previous Directive are that:
The FTT zone is now limited to the participating members states (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain).
For the purposes of determining where an entity is established under the regime, the new Directive adds the "issuance principle" to the definition of establishment. This means that a financial institution with no nexus with the FTT zone can now be liable to the tax when it is involved in a transaction over instruments issued by a company in the FTT zone. As with the earlier draft, trading with a counterparty in the FTT zone is also sufficient to bring a financial institution within the scope of the tax. The scope for a non-FTT zone financial institution to be taxed is therefore even wider under the new draft.
The fact that the EU FTT proposal has got to this stage – a draft Directive that 11 countries have been authorised to negotiate and introduce into law – shows the strength of political will behind FTT regimes. Wherever the EU FTT proposals end up, it is clear that FTTs will be a feature of the tax landscape for years to come.
Firstly, the technical aspects of the new EU FTT proposal will be discussed in the normal Council Working Party on Taxation Issues Subgroup on Indirect Taxation. The first technical Council working group meeting on the FTT was held on February 21 2013. These technical meetings are chaired by the EU Presidency, with all 27 EU member states present, with the non-participating member states having to "act in good faith". These discussions will therefore be an open and transparent process.
Member states can join the core group of 11 countries at any time throughout the enhanced cooperation process under the principle: "once you're in, you stay in".
After the technical work is completed, the proposal will move up within the Council to the political level for a vote. The timing of this next stage will depend on the EU Presidency and, likely, Germany and France.
To be implemented, the draft Directive needs to be discussed by the 27 EU member states at the EU Council of Ministers, put to the European Parliament for a non-binding Opinion, and then agreed unanimously by the participating member states.
Only the participating countries which have formally joined the enhanced cooperation on the FTT have the right to participate in the final vote in an ECOFIN meeting on the final shape of the harmonised FTT.
Based on the current draft Directive, once an EU FTT is enacted those countries signed up to the FTT will not be able to retain existing, domestic FTTs. In summary, in what continues to be a highly political process, the EU FTT is likely to become a reality. Although the Commission's proposal forms a formal basis for what are complex talks between member states, the current proposal may still be considerably diluted. The key issues to be determined in the coming months are the precise shape of the EU FTT and when it will come into force. We understand however that it is increasingly uncertain whether a compromise can be reached before the German elections in September 2013. This means that the proposed timeline may shift.
Bob van der Made (firstname.lastname@example.org)
Tel: +31 88 792 3696