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EU11 Scolded For 'Opaque' Financial Transaction Tax Talks

by Ulrika Lomas,, Brussels Thursday, May 8, 2014

The European Union's Economic and Financial Affairs Council's meeting on the current state of play on negotiations towards a European Union Financial Transactions Tax on May 6, 2014, ended with a joint statement signed by only ten of the eleven member states that have committed to introduce the levy.

Slovenia was the only jurisdiction not to have put its name to the statement. At least nine member states must be willing to be involved in 'an enhanced cooperation procedure' for the process to be allowed to go ahead.

The statement makes clear the intention of participating countries to work towards the progressive implementation of an FTT, focusing initially on the taxation of shares and some derivatives. If a deal was reached, these measures would enter into force by January 1, 2016, at the latest.

According to the Austrian Finance Minister Michael Spindelegger, participants have "agreed to a joint political declaration of intent and … reached a joint agreement on the key points." He said that further points will be confirmed by the end of the year.

An ECOFIN communique released after the meeting explains that the Commission's original objectives for an FTT have been retained. Namely, the FTT's features would be harmonized within the participating jurisdictions, the financial sector would be expected to make a fair and substantial tax contribution, and regulatory and supervisory measures would be complemented by provisions designed to deter transactions that do not enhance the efficiency of financial markets.

Beyond this, however, little additional information has been released. The ECOFIN communique makes reference to the rates first mooted by the Commission in 2011, but does not indicate whether they remain on the table. The Commission presented a revised version of its scheme in February 2013, when it set out designs for implementing enhanced cooperation, but no further changes have been made public.

Speaking after the meeting, Commissioner Algirdas Šemeta said that he was pleased to see the FTT back in the spotlight. He welcomed the continued commitment of participating states, and stressed that they must "invest wholeheartedly in this file to make it law within the timetable foreseen."

Šemeta admitted that "the plan and pace are less ambitious than the Commission had proposed," but added that ministers must not lose sight of their end goal of introducing the first regional FTT in the world. He called on them to act quickly, and urged the Greek Presidency to "assess all member states' positions and come forward with a compromise proposal for discussion at the Working Party meetings."

In spite of Šemeta's professed optimism, it looks increasingly likely that the UK will launch a fresh legal challenge against the proposals. The European Court of Justice last week dismissed the case brought before it by the UK, concluding that the UK's argument was based more on the shape of a potential future FTT rather than the enhanced cooperation procedure it will be established under.

UK Chancellor George Osborne told his fellow ministers that the UK continued to view the FTT as a tax on jobs, investment, and pensions, and therefore did not want to be a part of it. He pointed out that "it is up to member states to decide whether they want to damage jobs and investment in their own countries, but if they seek to damage jobs and investment across the rest of Europe then we're entitled to challenge that."

Osborne also criticized the continued lack of clarity on the issue. He said: "We have a situation where eleven member states are working up their proposals, largely in secret and we get a piece of paper handed to us all saying 'Oh this, by the way is what we've agreed.' There is absolutely nothing on crucial issues, or which derivatives are going to be included. There's absolutely nothing here on the potential extraterritorial impact. I'd like to hear what the issuance rules are. Is this tax going to apply to shares and derivatives issued in all member states?"

There were signs that Sweden could support the UK in its legal case, after its Finance Minister Anders Borg described the FTT as "a very inefficient and costly tax, which will have a detrimental impact on investment." He too attacked the lack of information as "a real problem." Ireland has however ruled itself out of any such action. Finance Michael Noonan told reporters that the FTT did not appear to place the country's financial services sector in danger.



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