France and Germany’s decision this week to push ahead with a financial transaction tax (FTT), before European Parliamentary (EP) elections in May is unlikely to result in success, says Taxand, which recommends they adopt a policy of ‘more haste, less speed’.
The independent global organisation of tax advisors to multinationals comments that even after lengthy discussions it remains unclear how the EU’s proposed version of the so-called ‘Tobin tax’ would be applied in the 11 European Union (EU) states that have signed up to the FTT. This made France and Germany’s belief that they could implement it during the next three months implausible.
“The proposed tax has faced a barrage of criticism, notably from the EU Council legal service which raised objections last year around the likely impact on country relationships and the wider global economy, as well as its bearing on long-term growth and jobs,” said Frédéric Donnedieu de Vabres, chairman of Taxand.
“The EU’s own examination of the tax showed that it would shrink the economy, so much so that it believes it unlikely to generate any extra revenue at all.
“FTT, originally conceived as a quick-fix for the current financial woes in the European economy, was expected to generate €30bn-€35bn per annum. However, as the scope of the tax continues to be refined, the potential magical money-making machine is looking a little ‘out of order’.
Donnedieu de Vabres added that France’s president, Francoise Hollande, reportedly claimed he would rather have an “imperfect tax to no tax at all”, but asking 10 other states to agree to this approach might prove more challenging.
Hollande, speaking earlier this week at a press conference, said: “We want to wrap up (a deal on) the FTT, which has united us from the start, before the European elections.”
German chancellor, Angela Merkel, added “progress on financial transactions tax before European elections would be important signal to EU public.”
EU countries opposed to the concept include the UK, Sweden, Denmark, the Czech Republic and Bulgaria, while others are neutral. The Netherlands supports the concept of an FTT, but only if it applies across the EU and not only to the 11 countries pressing for its introduction.
Estonia’s finance minister, Juergen Ligi, has said that enthusiasm for the FTT is ebbing as its expected scope shrinks. He told reporters that while Estonia supports the tax it no longer looks likely to raise much money for participating countries and the prospect of waning support also raised concerns about the FTT’s impact on competition.
Ligi added that in its current form the proposed tax would adversely affect damp revenues and make it less likely it would offer additional benefits in curbing risk.
Criticism of the FTT has also come in the form of a report from consultancy London Economics, which concluded that the tax in its proposed form would discourage financial activity and prove damaging for savers. While not directly affecting the value of savings, it would adversely impact on the value of the equity and debt holdings underpinning them.
The report suggested that Germany could lose up to €150bn in savings, while Italy the impact could be as much as €200bn. Even savers in the UK, which has opposed the concept of an FTT from the outset, could lose up to £3.6bn.
The European Commission (EC) originally announced plans for an EU-wide FTT in 2011, but backed down when there was insufficient support for the proposals. It was subsequently decided that under an ‘enhanced cooperation’ process, a minimum of nine member states could pursue the plan and 11 plan to go ahead: Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
The UK government opposes an EU FTT on the basis, arguing that any such tax must be global or traders will simply reroute their deals to financial centres outside the EU. It has begun a legal challenge to the plans in the Court of Justice of the European Union (CJEU).
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