EU proposal for financial transaction tax

On 28 September 2011 the EU commission formally proposed to institute a common financial transaction tax (FTT). The tax is not expected to become effective until 1 January 2014, subject to the Council of Europe accepting the proposal.

Whilst day to day activities such as mortgages and insurance contracts would remain outside the scope of the tax, it would affect all transactions in financial instruments, such as bonds, shares and derivatives to which a financial institution is a party. Effectively the FTT is therefore a tax on the transactions of banks and finance houses. With share and bond transactions being subject to a 0.1% tax and derivatives at 0.01%, the FTT is expected to raise some €57billion per year.

However, as the majority of the affected transactions currently pass through London, it is expected that some 80% of the tax would be raised within the UK. For that reason, the UK has said that it will not support the tax unless it is implemented globally. The UK is not alone in condemning the FTT proposal. The European Banking Federation called the proposal “a nonsense” whilst Canada, the United States and China were among non-EU countries who opposed the idea of an FTT.

One key question still under consideration is how much the FTT would actually benefit the European economy. The UK already imposes a stamp duty on share transactions and if the FTT were to replace this then the income raised by such transactions would actually fall. In addition, auditors such as KPMG have highlighted the IT, reporting and compliance costs of the FTT. In fact the EU’s own financial model shows that the imposition of a 0.1% transaction tax could result in an overall drop in GDP of up to 1.76%. Newshams will be watching the evolution of this proposal with interest.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at and we’ll get straight back to you.
02 November 2011

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