It appears from recent press reports that attempts to redesign the proposed FTT into a more simplified and restricted form may have made further progress. The German Finance Minister, Olaf Scholz, is said to have indicated that a “consensus” around this more limited version of the FTT has been reached. However, other finance ministers appear to remain more cautious and issues over the allocation of funds from such an FTT may still prove a significant stumbling block.
In December 2015, an agreement in principle was reached on some of the main outstanding issues on proposals for an FTT to be taken forward under the enhanced cooperation procedure (ECP). This, it appears, was yet another “false dawn” in relation to the FTT proposal and little or no further progress was made. Conflicts over the treatment of pension funds under the proposed tax appear to have undermined any progress as have, more recently, concerns over the impact of an FTT on attracting any banking and other finance industry business moving from London in the wake of Brexit.
However, reports from late 2018 indicated that a proposal had emerged to seek to take forward the FTT on a very restricted basis only. This proposal was said to be based on introducing an FTT which would be similar in scope to the one introduced unilaterally by France. For more details on the French FTT, see “Changes to the French FTT: Finance Act measures”.
A restricted FTT
Reports have suggested that the restricted form of FTT would apply to:
- transfers of securities in larger publicly traded companies only
- the imposition of the tax may be linked to the transfer of ownership in the local trading venue
- derivatives and non-equity securities would be excluded from the scope of this new FTT proposal, and
- there may be a range of other exemptions, such as for intra-day transactions.
It was clear that such a proposal stood a higher chance of being agreed by participating Member States by imitating domestic stamp taxes and avoiding some of the more controversial aspects of the original proposals. Indeed, there may be the possibility of extending this more limited version of the FTT beyond the existing ten Member States party to the ECP.
Following the ECOFIN meeting held on 12 March 2019, the German Finance Minister is reported as saying that “certain issues” have still to be clarified, such as how the proceeds from the FTT will be distributed. Previous suggestions of an FTT limited in such a manner ran into concerns by some Member States that they would not receive enough revenue if FTT is allocated to the participating Member States by reference to the location of the issuer of the equities. As such, it remains to be seen if previous allocation issues can now be addressed (perhaps by allocating based on the location of the trading venue rather than the location of the issuer).
Whilst other finance ministers appear to have been more sceptical about the chances of the proposal progressing, there does at least appear to be renewed momentum behind the proposal.
Technical difficulties and differences over the scope of the original FTT proposal and, more recently, the opportunities offered by Brexit to attract foreign banks appear to have derailed the original FTT proposal. Whilst no one had actually had the courage to pronounce the FTT proposal dead, it seemed to have drifted into a long-term slumber from which it was perceived to be unlikely ever to awake.
The reports of the consensus on the new proposal offer the prospect of the potential birth of a new, more realistic FTT, rather than a redrawing of the old. Whether the Commission is willing to totally give up on its original concept remains to be seen, but there can be little doubt that the chances of Member States reaching agreement on the reported new proposal may be significantly higher, and that it appears to be significantly less damaging than its previous incarnations.
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