A Round-Up of FTT developments across Europe
There have been varying reports on the progress of the EU FTT in the run up to this week’s meeting of economic and finance ministers (ECOFIN).
Austrian Finance Minister Hans-Joerg Schelling was reported as saying that agreement on the EU FTT is now in reach.
It is thought that Belgium, Slovakia and Slovenia have raised opposition to aspects of the tax such as its imposition on pension schemes, but Schelling hinted that two out of the three countries were now on board with a compromise proposal involving national opt-outs. This would mean that discussions could commence again with the minimum number of nine member states required to proceed with the enhanced co-operation procedure.
The participating member states have not generally been in favour of permitting carve outs or exemptions from the EU FTT, such as for market makers or pension funds. German Finance Minister, Wolfgang Schaeuble, noted that “even a Swiss cheese needs more than holes”. In contrast to the optimism of his Austrian counterparty, Schaeuble was reported as saying he did not expect much to be agreed on the EU FTT any time soon.
While France has traditionally supported the EU FTT initiative (and has introduced its own FTT on French equities in the meantime), the new French Finance Minister, Bruno Le Maire, is understood to have asked for time to consider the proposal, leading to postponement of the planned discussion by the participating member states at this week’s ECOFIN meeting. It is now expected that the ministerial discussions will take place at the margins of the ECOFIN meeting in Luxembourg in mid-June. In the event of any agreement between the participating member states, a new draft EU FTT directive would be published by the European Commission.
The key administrative aspects of the EU FTT, notably collection of revenue by and attribution among the participating member states, are still to be agreed, so further obstacles to agreement remain on the horizon even if the substantive aspects regarding exemptions are agreed. Media reports have increasingly focused on how revenues raised by the EU FTT could constitute an independent revenue stream for the participating member states, potentially offsetting their contributions to the EU and/or providing a new income stream for the EU. This is seen as important in the context of the UK’s financial contributions ceasing in connection with its exit from the union. As such, the EU FTT appears likely to remain on the ECOFIN agenda for the foreseeable future. We shall of course keep you up to date with material developments.
The two key proposals involve:
- extending SDRT to cover a broader range of assets, including bonds and derivatives (options are cited as an example), and
- removing intermediary relief and replacing it with a lower rate of 0.2% which applies to purchases by financial firms acting as market makers, such as banks, brokers and hedge funds.
The standard rate of 0.5% would continue to apply for non-intermediaries. There is no proposal to join the EU FTT.
Stamp duty and SDRT on UK shares raised £3.3bn last year. The proposal is to raise an additional £4.7bn per year (i.e. £8bn in total). The Labour party estimates the breakdown of the additional revenue as follows: £2.5bn from stamp duty on derivatives, £1.2bn from stamp duty on bonds and £1bn from the 0.2% charge on intermediaries. This £4.7bn is expected to rise to £5.6bn over the next 5 years, according to Labour estimates.
The abolition of intermediary relief would give rise to the ‘cascading’ problem which is a feature of the EU FTT, notably that multiple charges arise on a single economic transaction due to the involvement of multiple brokers / clearing members. As such, the estimate of £1bn of extra stamp duty being raised from intermediaries could be well below what would be raised if trading volumes and activity continued at current levels. This additional SDRT may be passed by market makers on to the ultimate purchasers, such as investment funds and pension funds.
While these particular proposals, depending upon the outcome of the general election on 8 June, may not be implemented on this occasion, the fact that the EU FTT discussions have been continuing for more than five years illustrates that once taxes on capital markets transactions are proposed they can remain on the agenda for some time.