In February 2013, the European Commission presented a proposal for a Financial Transaction Tax (FTT) in 11 Member States: Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia. The purpose of the FTT is to:
- Harmonise legislation concerning financial transactions
- Ensure that the financial sector 'fairly and substantially' contributes to covering costs of the recent crisis, also compared to other sectors
- Disincentivise excessively risky activities by financial institutions and complement other regulations aimed at avoiding future crises
- Generate additional revenue for general budgets or specific purposes
The FTT covers most capital markets transactions and has extraterritorial reach. If at least one party in the transaction is located within the FTT area, both parties in the transaction are taxed. Transactions in any instrument whose issuer is located in the FTT area are taxed irrespective of where transactions take place and where the counterparties are located. Financial institutions involved in transactions are liable to pay the tax. Non-financial parties are not directly subject to FTT.
The European Commission's own estimates predict that trading will decrease by 15% in securities and by as much as 75% in derivatives in markets affected by FTT. Such level of relocation/disappearance would of course imply severe impacts on the liquidity and efficiency of financial markets. As the European markets are interconnected, the reduction in activity on the FTT area markets will also impact liquidity and efficiency of non-FTT markets and thereby its customers.
No Nordic countries are at present planning on introducing the FTT, but Nordic customers would be directly impacted when trading FTT issued instruments or when trading with counterparties from FTT countries.Latest developments
The FTT states agreed on a joint stepwise approach in May 2014, starting with “Shares and some derivatives”, which was complemented in January 2015 with the principle of “widest possible base and low rates”. However, the scope is still being negotiated.