EU FTT attempts yet another comeback

Participating Member States reiterate commitment to introduce multilateral FTT by 01 January 2016.

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At the end of 2014, the EU Financial Transaction Tax (FTT) seemed to be almost dead in the water. The eleven EU Member States backing the FTT had failed to meet their end of year deadline for agreeing the first phase of the proposed tax and there appeared to be little prospect of real progress in 2015.

However, the new year dawned and the FTT was handed yet another potential lifeline when French President Hollande announced that he would ask French Finance Minister, Michel Sapin, to "call a meeting of the Finance Ministers of the eleven countries in January, to put the FTT into place. We must tax all financial products at a low rate, and the tax base must be as broad as possible".

This announcement was followed, on 21 January 2015, by a joint letter from Monsieur Sapin and the Austrian Finance Minister, Hans Jörg Schelling, to the Finance Ministers of the other nine participating Member States. The letter reportedly sought to breathe new life into the FTT negotiations and proposed that the tax should be applied to “the widest possible tax base with low rates,” from 2016. The letter also provided some indication that this wide tax base should include a broader range of derivatives than had been targeted in negotiations last year: “Each participating Member State has expressed a desire to exempt certain sensitive assets. As a result, the very tax base has been stripped of meaning, particularly in the case of derivatives.”

On 27 January 2015, ten of the eleven participating Member States issued a joint statement reiterating their commitment to the introduction of a multilateral FTT. Greece was the only missing signatory, probably due to the very recent change of Government there. The joint statement chimes with the Austro-French letter referred to above and its key message is that participating Member States intend to push forward with the introduction of an FTT “based on the principle of the widest possible base and low rates” by 01 January 2016. Dr Schelling has reportedly suggested that a two phase approach is still envisaged, namely the introduction of a first phase FTT from 01 January 2016 to catch shares and some/all derivatives, with the wider objective of expanding the FTT at some unspecified point in the future. However, no details have been confirmed. The restriction of the announcement to a very general policy objective, and the absence of any detail as to what is envisaged, suggests that the eleven participating Member States are still a long way from agreement on what form any EU FTT should take. In view of this, the proposed timeline of first phase FTT applying from 01 January 2016 seems increasingly ambitious, as this would require both agreement between the participating Member States and then enactment of the national legislation in each jurisdiction within an increasingly limited timescale.

It has been reported that Portugal, with the support of the Commission, will now lead the technical work on fleshing out the scope and form of a renegotiated proposal. How much this will differ from the Commission’s February 2013 proposal, which is still officially on the table, is unclear. The next ECOFIN Council meeting is scheduled for 17 February 2015, at which a progress report is expected.

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