France introduced a financial transactions tax (FTT) on 1 August, the first country in the EU to do so.
The tax was originally proposed by the former French president, Nicolas Sarkozy, as a 0.1% levy on all share purchases involving France’s biggest companies. It was taken up by his successor, Francois Hollande, who has doubled the rate applicable to 0.2% and also extended it to all publicly-traded businesses with a market value in excess of €1bn.
Frédéric Donnedieu de Vabres, chairman of tax advisory group Taxand, said that the tax would “spark a flurry of reaction from multinational financial services companies” and many would question whether to maintain trading operations in France.
“Original proposals centred on EU-wide implementation, which proved too high a hurdle in the face of strong opposition from countries such as the UK and Sweden,” he said. “Both countries have emphasised the significant implementation issues as well as the potentially dire consequences for Europe’s competitiveness as a global hub for financial services. In the face of this opposition, France has pressed on alone.
“There remains a lack of clarity around exactly how the tax will work in practice and if it can be side-stepped through the use of contracts for difference [CFDs]. This uncertainty could trigger multinationals to consider diverting their trading activity to other countries for their European exposure.
“It remains to be seen whether the introduction of the FTT will impact France in isolation, creating an unlevel playing field for financial services across Europe, or whether it will threaten the competitiveness of Europe as a whole. Some multinationals may see the move as a catalyst for similar actions across the EU, influencing future decisions on investment in the region which could stall further any recovery in the eurozone.”
President Hollande has said that the FTT is expected to generate revenue of €170m this year and €500m, with part of the proceeds to be used to fund AIDS research.
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