Taxation of the financial sector
Member States and their citizens want to ensure that the financial sector makes a fair and substantial contribution to public finances. Moreover, the sector should pay back at least part of what the European tax payers have pre-financed in the context of the bank rescue operations.
Increasingly, different Member States are looking at new ways to tax the financial sector, notably by introducing bank levies and national financial transaction taxes.
These initiatives have risked leading to a fragmentation of the Single Market for financial services and to frequent occurrences of double taxation and double non-taxation. The Commission's proposal for a Financial Transaction Tax therefore aims at harmonising the key features of those initiatives that aim at taxing financial transactions so as to minimise these risks.
The Financial Transaction Tax (FTT)
The proposal of 28 September 2011 …
In September 2011, the European Commission proposed a harmonised Financial Transaction Tax for the EU (see (IP/11/1085 ). The objectives of the proposed FTT were:
- to prevent the fragmentation of the Single Market that could result from numerous uncoordinated national approaches to taxing financial transactions,
- to ensure that the financial sector made a fair and substantial contribution to public finances, and
- to discourage financial transactions which do not contribute to the efficiency of financial markets or of the real economy.
This initiative was also supposed to be a first tangible step for taxing such transactions at the global level.
The proposal was to harmonise the tax base and set minimum rates for all transactions on (secondary) financial markets, once at least one EU party (financial institution) was involved in this transaction. The minimum tax rates foreseen were 0.1% for the trading in shares and bonds, and 0.01% for derivative agreements such as options, futures, contracts for difference or interest rate swaps.
The proposal took a "triple A" approach, i.e. the tax should apply to all markets (such as regulated markets or over-the-counter transactions), all instruments (shares, bonds, derivatives etc.) and all actors (banks, shadow banks, asset managers, etc.). This would minimize potential distortions across different market segments and reduce the risk of tax-planning, substitution and relocation.
… and its fate
By mid-2012, EU Finance Ministers decided at ECOFIN that they could not reach unanimous agreement on the proposal for an EU-wide FTT in the foreseeable future. Nonetheless, a number of Member States expressed a strong willingness to go ahead with the FTT. The door was therefore open for a subgroup of Member States to engage in the procedure of "enhanced cooperation" on a common Financial Transaction Tax harmonised amongst themselves.
By end-September 2012, the Commission had received a request to this end from a group of 11 Member States. They asked to be allowed introduce a common system of FTT based on the scope and objectives of the Commission's initial proposal. The Commission analysed this request to ensure its compatibility with European law, also taking into account the interests of non-participating Member States.
On 23 October 2012 the Commission proposed to the Council to authorise the enhanced cooperation requested by these eleven Member States (see IP/12/1138). The European Parliament gave its consent on 12 December 2012 and the EU Council adopted a decision authorising eleven Member States to go ahead with the requested enhanced cooperation on 22 January 2013 (see Council press release ) (available only in English).
On 14 February 2013, the European Commission thus tabled a proposal for a Council Directive implementing this enhanced cooperation. As requested by the eleven Member States, this proposal mirrors the scope and objectives of the original FTT proposal, while also strengthening the anti-relocation and anti-abuse rules (see IP/13/115). Relevant documents in this context are
- the proposal itself (COM/2013/71 ),
- the impact assessment (SWD/2013/28 ) and its summary (SWD/2013/29 ),
- a presentation illustrating the features, impacts and functioning of the proposed framework, as well as
Through the FTT, as proposed, the financial sector will properly participate in the cost of re-building the economies and bolstering the public finances of the participating Member States. Annual revenues are estimated to be around EUR 30 to 35 billion, or 0.4 to 0.5% of the GDP of the participating Member States.
… and the way ahead
Discussions in the relevant Council working group started immediately after the Commission proposal was tabled. In these discussions, all EU Member States can participate, but only the 11 participating Member States will have the right to vote and agree on the Directive.
Once agreed upon at European level, participating Member States will have to transpose the Directive into national legislation. If agreement is found before the end of 2013, and there is a speedy transposition into national law by the participating Member States, this common framework for an FTT could still enter into force towards the middle of 2014.
In the meantime, the UK has challenged the legality of the decision of 22 January 2013 of the Council to authorise enhanced cooperation on a common framework of FTT and the scope and objectives of the initial commission proposal (see Case C-209/13 UK v Council). This legal challenge has, however, no suspending effect.
Further background information (documents, links, videos)