EU: Update on the FTT
Bob van der Made
After the European Commission presented its draft Directive for the financial transaction tax (FTT) to the European Council on February 14 2013 under the EU's enhanced cooperation procedure, the national fiscal attachés of the 27 EU member states started a series of technical discussions in the Council Working Party on Tax Questions – Indirect Taxation under the Irish EU Presidency on February 21 2013. This process is referred to as article-by-article reading or first reading whereby the fiscal attachés go through the Directive chronologically and can propose amendments. They can also ask the Commission, which is present throughout, as the proposer of the EU legal act, to clarify the articles and their impact further.
Importantly, parallel to this EU-27 process, the 11 participating countries (ECP-11) in the enhanced cooperation procedure – Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain – also met informally several times between February and mid-April 2013.
During the second working party, held on April 16, the ECP-11 were apparently no longer cohesive on even very basic points of the EU FTT.
A meeting document leaked to the press revealed that some of the ECP-11 suddenly had grave concerns about the proposal's impact. Yet, the ECP-11 countries cannot simply withdraw from the process and must take part in the final vote in the ECOFIN Council. For enhanced cooperation to work, at least nine countries need to vote in favour of the final proposal.
It also became clear in April 2013 that the political momentum in the EU for the FTT had moved on to other dossiers on which EU-27 political agreement was more readily possible. Lastly, it became apparent that the ECP-11 lacked leadership and direction.
Germany has unofficially parked the EU FTT proposal until the German federal elections scheduled for September 22 2013. France's position on the draft EU FTT had become more ambiguous and this ultimately led to it denouncing the current proposal at the end of May 2013. This came after the third working party on May 22 which apparently saw the ECP-11 increasingly divided amongst the smaller ECP-11 countries on the one hand, in favour of the residence principle, and Germany, France, Italy and Spain on the other hand, in favour of the issuance principle.
The working party only got to Article 4 under first reading. A fourth working party scheduled for June 13 was postponed until the second half of July, under Lithuania's EU Presidency.
The EU FTT did not figure on the agendas of the June 21 ECOFIN Council or the EU's summit of June 27-28.
Recent press reports confirm what we are hearing in Brussels that the current broad draft Directive is likely to be considerably diluted by the participating countries. EU Tax Commissioner Algirdas Semeta has replied to this by stating that such news reports are an attempt to create a sensation and do not reflect what is going on in the Council.
The EU Parliament's ECON Committee adopted Parliament's draft opinion on the Commission's EU FTT proposal on June 18 and this will be broadly endorsed by the whole Parliament in its plenary session in the first week of July. However, this is only non-binding advice from MEPs to Council required by EU law.
The ball is now in the camp of the ECP-11.
The enhanced cooperation procedure is likely to lead to an EU FTT being introduced across multiple countries in the EU, potentially in more than 20 EU countries depending on its final shape.
The most likely outcome is a narrow EU FTT based on the limited UK stamp duty regime and/or the French FTT, and the Italian FTT on derivatives, with a range of exemptions, such as bond trading, market makers, repos and pension funds, and possibly with reduced minimum rates.
Member states would also agree to a legal review of the Directive within three to five years, which might entail re-addressing some of the more difficult elements of the current proposal. In the meantime, the Commission has acknowledged that the originally proposed date for the EU FTT to come into effect, January 1 2014, is no longer realistic.
According to sources in Brussels, January 1 or July 1 2015, or even January 1 2016, may be more realistic as entry dates, but this remains very political and shorter lead times may be agreed.
Bob van der Made (email@example.com)
PwC EU Direct Tax Group, Brussels and Amsterdam
Tel: +31 88 792 3696