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EU FTT

It has been reported that, more than five years after the FTT was originally proposed by the European Commission, the group of ten EU member states seeking to introduce the FTT could reach a final decision on the tax by the end of the year. The group of ten met at the recent Economic and Finance Ministers (ECOFIN) meeting in Luxembourg.

While no specific developments have been announced other than as summarized below, European Commissioner for Economic and Financial Affairs, Pierre Moscovici, tweeted in respect of the FTT that the member states had agreed upon “the four basic features which will form the backbone of the tax. A final agreement has never been closer.” He declared “We are designing something which is, at the same time, ambitious… but also realistic. We are not going to do something that goes against the spirit of business”.

The “core engines” of the tax on which progress has been made between the ten member states are understood to include:

  • territoriality,
  • tax base (for shares and derivatives),
  • market making,
  • taxable events,
  • the transaction chain, and
  • the impact on the real economy (e.g. pension funds).

Agreement is understood to have been reached on taxing shares issued by companies in the ten member states initially, which could be extended to all shares after a transition period.

Sale and repurchase agreements (repos) used for short term liquidity and financing would be exempt from the FTT. Market makers would be subject to reduced tax rates (e.g. 80% of the tax rather than 100%). All derivatives would be in scope, save for these referencing government debt. The tax base for options would be the premium, and for other derivatives either the notional value or the market value.

French Finance Minister, Michel Sapin, is reported to have stated that “clear agreement” between all ten member states has been reached and an amended text would be prepared by the European Commission. The discussions have apparently “reassured the smaller countries, such as Slovenia and Slovakia”.

While this clearly does indicate progress, some key details are still to be decided and much work and political agreement is required for the detail to be finalized by the end of 2016.

Following Estonia’s withdrawal from the process in December 2015, the ten member states taking part in the enhanced cooperation process are: Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

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