By way of background, the EU FTT was first proposed in a draft directive published in September 2011, following a European Commission consultation on additional taxation of the financial sector, which considered options such as revisions to the VAT treatment of financial services, a financial activities tax and an FTT. EU Member States were unable to agree unanimously whether any such additional tax should be introduced. Consequently, a group of (then) 11 Member States agreed to proceed with an EU FTT under the enhanced co-operation procedure (ECP). Subsequently a revised FTT proposal was released in February 2013.
However, the 11 Member States failed to reach agreement on the key features of the EU FTT. The lack of agreement and successive delays, together with concerns with respect to how much revenue would be raised by smaller nations without thriving capital markets, led Estonia to withdraw from the ECP process in December 2015.
Although some progress had reportedly been made since Estonia’s withdrawal, it had been rumoured that Belgium and Slovakia would also formally withdraw their support for the FTT at the ECOFIN meeting on 17 June 2016. As the ECP requires a minimum of nine Member States, the withdrawal of further countries could have marked the end of the EU FTT as well as the use of ECP in tax matters.
The rumoured withdrawals did not happen; instead the 10 remaining Member States have set themselves a September 2016 deadline to reach agreement on the key features of the EU FTT, such as the instruments in scope and the basis for the tax, which despite years or negotiation have not been finalised. The Austrian Finance Minister Hans Jörg Schelling, who has been chairing the FTT working group, has been quoted as saying “If we don’t have a solution by September, we probably won’t have one.”
In our view, it seems unlikely the 10 remaining Member States will reach agreement by September with the summer break approaching. There seems no clear indication why progress would be made during the 2016 summer break which could not have been made in previous years. However, if the EU FTT project does indeed founder, it remains to be seen whether the ECP process will be resurrected for an alternative financial services tax initiative in accordance with the original 2011 Commission consultation.