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EU Financial Transaction Tax

EU Financial Transaction Tax

KPMG’s UK FTT team brings you regular insights and updates on the European Commission’s proposals for a financial transaction tax (FTT).

Regular insights and updates on the European Commission’s proposals for a FTT

European Financial Transaction Tax

The European Commission’s proposals for a financial transaction tax (FTT) (often referred to as a ‘Tobin tax’ in the media) to be implemented in 11 EU member states have attracted widespread opposition. Of particular concern to financial institutions is the very broad scope of the proposed tax, its extra-territorial reach and the likely impact of the tax on the financial markets and wider economy. KPMG’s UK FTT team brings you regular insights and updates on the FTT proposals.

Please contact one of KPMG’s FTT team for further information. 

If you would like to receive regular updates on the FTT Blog please subscribe here.

Some political consensus

23 November 2016

It has been almost a year since we updated this EU FTT diary. Since our last update various deadlines to reach political consensus have been and gone and for most of this period it has seemed that an enhanced co-operation FTT amongst the 10 remaining participating member states was a remote possibility.

Discussions have been ongoing however at a technical and political level and we understand broad political consensus has been reached amongst the EU-10 on the core building blocks of the FTT. The Slovak presidency of the Council of the European Union issued this summary of the current status of the FTT following the meeting of the Working Party on Tax Questions on 25 October. This is a helpful summary of the current status.

The broad consensus is on the “core engine” of the FTT. This is similar to the original Commission proposals issued in February 2013 but with the following important changes:

  • The FTT would apply to shares issued in participating member states with an option for member states to extend the scope to non-EU 10 issued shares at a later date.
  • Derivatives are subject to broad inclusion (based on residence of the counterparties) but with – at least initially - exemptions for derivatives where the underlying is sovereign debt. The tax base and rates are still under discussion but the base would in general be the notional amount, possibly adjusted for shorter dated contracts and for options would be the premium. 
  • Sovereign debt would be excluded and broader inclusion of bonds is up for debate
  • Repo and stock lending transactions excluded
  • Reduced rates for market maker

The Commission has been asked to produce a draft directive before the end of 2016. This is then expected to be subject to further political and technical discussion. There are significant issues still to be agreed, including collection mechanisms, allocation of revenues, impact on the re(al economy, taxability of pension funds and other aspects of the core proposals (e.g. inclusion of bonds). Some of these issues are pretty fundamental and subject to long-standing disagreement. The FTT was not discussed at the Economics and Financial Affairs Council (ECOFIN) meeting on 8 November and there is no timetable for agreement or indeed implementation. 

In our view, there is a long way to go before a definitive political agreement can be reached and discussions are likely to extend well into 2017. Even if political agreement is reached soon, a commencement date of 1 January 2018 already looks unlikely. However, the core message is that an enhanced co-operation FTT is not dead. Financial institutions should play close attention to developments and be ready act quickly in 2017 if further progress is made.  

FTT  -  Discussions continue

17 December 2015

The ECOFIN meeting on 8 December was intended to be a make or break meeting for the prospects of an enhanced co-operation FTT. A statement following the meeting released by the 10 remaining member states (Estonia has now dropped out) represents progress of sorts but significant differences still remain. A further deadline of June 2016 has been set to reach consensus but in our view there is still real uncertainty over the prospects of the EU FTT.

Please see the alert from KPMG's EU Tax Centre for further commentary on the statement released by the 10 participating member states which may be found here.

 

Still no breakthrough 

12 November 2015 

Participating member states have failed to reach a consensus on the introduction of the FTT following a meeting of European Finance Ministers on 9 November 2015. In public, Finance Ministers speak of real progress being made. However, there are still some major disagreements on the scope of the tax and how it should be levied. Also, some countries are making special requests which will inevitably prolong the process of reaching agreement. EU Finance Ministers meet again on 8 December and if political consensus is not reached at that meeting the prospects for an enhanced co-operation FTT look bleak. If there is consensus, the Austrian Finance Minister has stated that a commencement date of second quarter of 2017 is most likely. 

 

Renewed political appetite and next steps

2 October 2015

Readers will have seen reports of some political progress on the Financial Transaction Tax (FTT). Participating Member States are understood to have agreed in principle to introduce a fairly broad-based FTT, initially covering equities and at least some derivatives. However, technical discussions are still needed for a range of points and the impact of the FTT will depend on the nature of the exemptions applied. Likely exemptions include bonds and other debt instruments (particularly government bonds), repos, unlisted shares and shares in small cap companies, but even these exemptions are not finally agreed. A wider range of derivatives is likely to be covered than is the case under the Italian FTT. Exemptions for derivatives over government debt and some sort of exemption or relief for so-called “real economy” hedging transactions are being actively discussed. Interestingly the taxability of pension funds is still uncertain, with the case for exemption depending on the range of other exemptions within the FTT. We expect any FTT to be issuance-based - at least for equities- , but the rate and collection mechanisms are yet to be agreed.

With so much still uncertain, readers may ask what progress has been made in the past two years. In reality, progress has been very limited. However, earlier in the summer the FTT appeared to remain in the long grass and there is a sense of renewed political appetite to implement the FTT in some form.

Moving forward, the Working Party on Tax Questions (Indirect Taxation) met on 29 September to discuss some of the issues noted above -in particular the impact on the “real economy” and pension funds. The next political discussions are likely to be at the ECOFIN meeting on 6 October. The French would like to reach political consensus before the Paris Climate Conference commencing on 10 November. Whether this is within reach is open to debate -we have been here before - but it seems likely that even if political consensus is reached quickly, technical discussions will run well into 2016. A commencement date on 1 January 2017 is still possible and therefore firms should still have contingency plans for implementation work during 2016. As noted previously the position should be clearer by the end of November this year.

 

EU FTT – still incubating… 

5th August 2015

The pace of FTT news has certainly slowed and it has been a while since we have provided an update. In reality there is little specific to update.

Technical discussions have continued over the past few months and have led to conflicting messages. There appears to be much broader awareness among the participating member states of the key issues and options and of the ways in which these could be resolved. There has been less sign of an emerging consensus on a compromise solution on key areas – tax base, use of residence vs issuance principle, scope of derivatives tax and basis of calculation and collection mechanism. While Pierre Moscovici and others have continued to indicate expectations that the proposals will translate ultimately into action, proponents of the FTT who had hoped for political progress before the summer recess have been disappointed. For the time being, unsurprisingly, Greek matters have taken priority.

Our understanding is that the next political discussions on the FTT will be in the autumn. The question is how far and fast it then proves possible to move towards consensus. A commencement date of 1 January 2017 remains a realistic possibility, but will require significant progress in negotiations in the final quarter of this year. For those trying to assess budget requirements for any implementation programmes required during 2016, the prudent advice would be to keep a placeholder and reassess the position in late October/November, when it should become clear whether there is a willingness to compromise on scope and collection mechanisms in order to make 1 January 2017 implementation a realistic prospect.

 

No sign of consensus yet

13 March 2015

It has been a number of months since we last provided an update on the proposed EU FTT. However, little progress has been made.

Since our last update, finance ministers from the participating Member States released a joint statement renewing their commitment to an EU FTT. There was little information on the proposed scope of the tax beyond calling for a wide tax base and low tax rates. The finance ministers remain publically committed to a start date of 1 January 2016 but the majority of market participants are working on the assumption that this is not practicable.

The 28 Member States met at the end of February and it is clear that no progress has been made on any of the key issues. Following a request from the participating Member States, the European Commission is now providing more technical support; this may be causing the negotiations to be more protracted than they already are.

  • Despite a number of stakeholders arguing for a market makers exemption, the European Commission is understood to be arguing that taxing market-making activities would complement and support existing financial market regulation (although it may have something to do with the fact that the European Commission sees the taxation of market makers as a key source of revenue).
  • The European Commission is still arguing in favour of the ‘residence principle’. Very broadly, this is where the tax applies to financial institutions depending on where they (and/or their counterparties) are located.
  • There is clearly no agreement on how the tax revenue will be collected and how collection mechanisms would apply to financial institutions resident outside the EU. We understand some Member States have also complained that the collection mechanism is being discussed before agreement has been reached on the scope of the tax.

We understand the next FTT working group is not scheduled to meet again until May. This leaves very little time to agree on the scope and mechanics of the EU FTT and the proposed start date of 1 January 2016 looks increasingly unlikely. 

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