Financial Transaction Tax

In the light of the financial crisis, policymakers are, rightly, looking for ways to tackle systemic risk in the global financial system in order to achieve financial stability. The crisis has led to international discussion and initiatives concerning the regulatory regime and, more recently, the taxation of the financial sector has moved up the agenda.

In particular, in September 2011, the European Commission adopted a proposal for a Financial Transaction Tax which was subsequently discussed in the Economic and Financial Affairs Council of the European Union (ECOFIN). The Commission proposed a broad-based FTT, taxing transactions in securities and derivatives. At the 22 June 2012 ECOFIN meeting, it became clear there was no unanimity on the Commission’s FTT proposal, but that a number of Member States had expressed support to move towards the use of enhanced cooperation (a procedure which would allow a group of Member States to proceed with a coordinated introduction of an FTT).

Following the 22 January 2013 ECOFIN – at which the Council adopted a decision authorising 11 Member States to proceed with the introduction of an FTT through enhanced cooperation – the Commission published the formal legislative proposal on 14 February 2013. The Commission proposal is largely based on its earlier draft of September 2011. Now that the Commission has issued its proposal, all 28 Member States may take part in the deliberations, but only those participating in the enhanced cooperation procedure will have voting rights.

At the December 2015 ECOFIN meeting, Estonia announced that it would leave the enhanced cooperation process, bringing the total number of participating Member States down to 10. Since then negotiations have continued until in June 2017 it was announced to postpone the negotiations to have more time to evaluate the impact of the Brexit negotiations. The next meeting of the EU10 Finance Ministers is expected to take place in October 2017.

AFME has commissioned studies of the FTT proposal in order to build the evidence base as to the likely impact of an FTT.

• Oxera reviewed the Commission’s own impact assessments and concluded that the proposed tax would have a negative impact on economic growth and jobs;
• Oliver Wyman analysed the likely impact on the FX market and found that the proposed tax will significantly increase direct and indirect transaction costs;
• Oliver Wyman analysed and quantified the likely impact of FTT on end users such as corporate and investors, and found that they would bear costs of 30-50bn euros per year.

Based on these and other findings, AFME remains firmly opposed to the introduction of an FTT and urges the 10 participating Member States to reconsider the proposal given its negative impact

In the meantime, France introduced its own domestic FTT on 1 August 2012. The French FTT includes a tax on the acquisition of shares in listed French companies with a market capitalisation of over 1bn euros, a tax on the acquisition of uncovered CDS on EU sovereign debt and a tax on cancelled or modified orders to capture HFT activity. Given that the legislation for this tax has been passed, AFME has concentrated on assisting members with implementing the legislative requirements. In particular, we developed an AFME French FTT Indemnity Protocol which was published on 1 August 2012. This original Protocol will be terminated with effect from 1 November 2017 and be replaced by a new French FTT Indemnity Protocol.

In Italy, a domestic FTT was enacted and entered into force on 1 March 2013. The Italian FTT applies to the transfer of Italian equities with a market capitalisation of over 500m euros and to certain equity derivatives. AFME has concentrated on assisting members with implementing the legislative requirement. In particular, we have developed an AFME Italian FTT Equity Indemnity Protocol and an AFME Italian FTT Equity Derivatives Protocol.