The Portuguese presidency of the EU Council in February 2021 proposed an inclusive discussion among all EU Member States regarding tax design issues of a financial transaction tax at the EU level.
Taxation of the financial sector has been under discussion at the EU level since 2011, when the European Commission first proposed implementing a financial transactions tax (FTT) at EU level.
After initial discussions, it became apparent that unanimous support among EU Member States did not exist, and 11 EU Member States decided to move ahead with the initiative under the so-called enhanced cooperation procedure. Since then, work on the file in the EU Council working groups has been ongoing, despite Estonia’s withdrawal from the group.
The most recent significant development came in the form of a proposal from the German Finance Minister in December 2019, for a revised financial transaction tax directive to be adopted by the 10 remaining states under enhanced cooperation. The revised proposal included an optional exemption for pension schemes and a new system for mutualization of the financial transaction tax revenues.
In parallel, the financial transaction tax was mentioned as a possible new EU resource as part of the EU’s long-term budget, whereby the European Commission committed to put forward a proposal by June 2024. In the meantime, several EU Member States (France, Italy, and Spain) have introduced unilateral financial transaction taxes.
In an attempt to move the file forward, the Portuguese presidency of the EU Council recently proposed an inclusive discussion on tax design issues of the financial transaction tax at the EU level. The approach suggested by the presidency would be to allow for gradual implementation of the tax based on the models developed and already tested by France and Italy, where unilateral financial transaction taxes have been introduced.
In the presidency’s view, a step-by-step approach, potentially structured on the basis of a review clause, would allow:
EU Member States have been invited to provide views about (1) the proposed approach to the financial transaction tax design; (2) whether the French and Italian experience would represent a solid basis for the gradual European approach on the financial transaction tax (either in the context of the enhanced co-operation or EU-wide); and (3) the proposal to include the transactions in equity derivatives in the scope of the financial transaction tax (in line with the Italian model).
EU Member States not participating in the enhanced cooperation initiative are also asked whether the need to find additional sources for financing the EU recovery effort, coupled with the proposed technical approach to financial transaction tax design, might increase their interest in further work on an inclusive compromise proposal—that is, for an EU-wide financial transaction tax.
Read a February 2021 report prepared by KPMG’s EU Tax Centre
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