France Seeks Improvements To FTT Proposal
18 July 2013
Posted by: Author: Ulrika Lomas
Author: Ulrika Lomas
French Finance Minister Pierre Moscovici has underlined the need to make significant improvements to the European Commission's financial transactions tax (FTT) proposal, to ensure that the levy does not harm the future financing of the French economy or adversely affect the Paris financial center when implemented.
In a keynote address at an international gathering in Paris Europlace, Moscovici made clear France's firm commitment to a financial transactions tax at European level, and lamented the current lack of support for the levy across all 28 EU Member States.
In order to achieve the objective of an EU FTT, and indeed to further widen application of the tax, certain "obstacles," arising from technical difficulties in the European Commission's proposal, must first be addressed and removed, Moscovici maintained, alluding to the fact that European Tax Commissioner Algirdas Šemeta has conceded that some elements require fine-tuning.
Highlighting France's commitment to ensuring that the FTT is an "ambitious tax," Moscovici recommended that the scope of the tax be widened to include currency transactions. He also advocated that the "issuance" principle be applied to the tax, to ensure that transactions are taxed in the place where the financial product is issued. This is in contrast to the European Commission's proposal, which favors application of the "residence" principle, according to which taxes are imposed where parties to the transaction are established.
Defending his country's stance, Moscovici explained that applying the residence principle will merely encourage the relocation of financial institutions – on a massive scale – outside of the zone of the 11 participating EU Member States, as occurred in Sweden in the 1990s, with disastrous consequences.
Furthermore, Moscovici recommended that the method of taxing derivative products be adjusted to better take into account "the specificities of each product." The method currently proposed by the European Commission involves the levying of a single rate of tax of 0.01 percent, which is much too uniform and will merely result in over and under taxation, Moscovici said, suggesting that the provision be replaced with a more detailed tax scale.
Finally, Moscovici stressed that "repo" transactions, which play a central role in liquidity balance between commercial banks, should not fall within the scope of the FTT, warning that to include such transactions will simply pose a major risk to the functioning of the credit market, as the European Central Bank has indicated.
Algirdas Šemeta recently signaled that the Commission is prepared to consider suggestions for a lower rate, after Members of the European Parliament recommended a phased introduction plan. A resolution prepared by lawmakers retained the recommended 0.1 percent tax on stocks and bonds, and 0.01 on derivatives trades, but only as an eventual goal rate. It instead suggested that trades in sovereign bonds should be taxed at just 0.05 percent, trades of pension funds at 0.05 percent for stocks and bonds, and at 0.005 percent for derivatives, until January 1, 2017. After that, the full rate could kick in.
Recent updates to the Commission's FTT webpage also hinted that a six-month postponement of the intended January, 2014 start date could be on the cards. Under a section titled "The way ahead," the Commission stated: "Once agreed upon at European level, participating Member States will have to transpose the [Commission's] 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."