The topic of a European financial transaction tax (“EU FTT”) has been debated and discussed with vigour since the 2008 financial crisis. There has been growing political pressure that the financial sector should contribute more to pay for the financial crisis which it is popularly perceived as having caused. Despite there being no agreement on a global level or even on an EU level, the European Commission has remained committed to introducing an EU FTT. The lack of consensus on an EU level has led to 11 EU Member States seeking to introduce an EU FTT under the Enhanced Cooperation Procedure (“ECP”). This remains an area of political friction as the UK on 18 April 2013 launched a legal challenge against the use of ECP for an EU FTT in the European Court of Justice, while negotiations and discussions continue at a political level.
While these FTT discussions are on-going, the French and Italian governments have implemented unilateral FTTs.
The Commission released its first EU FTT proposed directive in September 2011 which was intended to apply across all 27 Member States. Objections were raised particularly from Ireland, Luxembourg, Malta and the UK, who expressed concern about pushing forward with an EU FTT in the absence of a global framework, fearing that it would place the EU at a competitive disadvantage. Notwithstanding these objections, a minority group of Member States decided to press on under ECP. There are presently 11 Member States participating in the ECP (“FTT Zone”) with others able to join subsequently. The major territories that are part of the FTT zone include France, Germany, Italy and Spain.
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The EC released a revised proposed directive in February 2013. The proposed EU FTT is very broad and covers a wide range of financial instruments, including, bonds, equities, derivatives and structured products. The revised directive also significantly broadens the scope of the EU FTT from the original proposal through the use of both the residence and issuer principle (the original version only used the residence principle). The directive imposes a minimum rate of 0.1, except for derivatives which will be taxed at a rate of 0.01% on the derivatives notional value
Under the residence principle, a transaction will be subject to EU FTT where one of the parties is “established” in a FTT zone country. Under the issuer principle, a financial institution is deemed to be established in a FTT Zone where it transacts in a financial instrument issued in that FTT Zone. The means that the EU FTT has very significant extra territorial implications.
The EU FTT is due to come into force on 1 January 2014. However there are a significant number of issues to be addressed meaning that implementation of the EU FTT by this date may not be realistic.
The directive leaves the mechanics of reporting, collecting and paying the EU FTT to the individual Member States.
In advance of the EU FTT two Member States (France and Italy) have unilaterally introduced their own domestic FTT legislation applying to transactions of certain equities, and in the case of Italy to equity derivatives. Other territories have taxes or duties applied to broadly similar transactions, such as the UK’s stamp duty reserve tax. Double taxation arising on the same transaction (i.e. under unilateral taxes and the EU FTT) has not yet been addressed.
Although the UK is not among the participating Member States, it will be directly impacted by the EU FTT due to its broad scope. It is therefore crucial that all UK groups and entities likely to be affected stay abreast of the latest EU FTT developments and understand the details of the new proposal and how they could be impacted.
Entities impacted include asset managers, banks, brokers, insurers and treasury companies.
Deloitte has developed a network of EU FTT specialists across European member firms to share their technical and industry experience and knowledge. The team is composed of both tax and consulting specialists who will seek to assist you in assessing the impact of the tax on your business and transaction flows, in understanding the systems and process changes which may be required to identify impacted transactions and fulfil all reporting and payment requirements.
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