Financial Industry: EU proposed Transaction Tax on "dubious financial deals" could reduce Britain's treasury income by euro 4 billion

The European Union on Feb. 14 unveiled its proposal for a 0.1 percent levy on stock and bond deal trades and 0.01 percent on derivative trades with ties to participating countries.

The measure exempts primary offerings of government bonds, though includes secondary market trades. The EU estimates the move could raise as much as 35 billion euros ($45 billion) a year. To become law, the proposal has to be approved by all the nations that agree to participate, which currently stands at 11 countries including Germany, Spain and France.

The effective tax rate would be 10 times the EU levy on bonds because the tax would be repeatedly charged at each step in the settlement of a trade, the report said. That “cascade effect” could cripple trading in the debt-securities markets, London economists say.

To stop traders from escaping the levy by operating outside the tax’s zone, the EU plan invokes “residence” and “issuance” ties to firms in participating nations. That means, for example, that a French bond traded in London would still be affected.

Approximately half of European investment-banking activity is conducted through London and British financial firms and it has generated almost 12 percent of the country’s tax revenue from 2011 to 2012, according to TheCityUK, a British bank lobbying group

The new EU Transaction Tax is seen by many Governments and central banks in Europe as a major first step- in curbing  some of the financial industry's  speculative  practices which resulted in one of the world's worst recessions ever experienced.

EU-Digest

Finland's stand on transaction tax postponed

According to Yle sources, Finance Minister Jutta Urpilainen intends to inform a meeting of EU colleagues next week that the Finnish government has not be able to formulate a position on the issue of the financial transaction tax proposal. The decision to proceed in this manner was approved by the Cabinet's EU affairs council on Friday morning.

The two main government partners, the National Coalition and the Social Democratic Party, disagree over the proposed tax. The SDP wants Finland to take part in preparing for such a tax, while the National Coalition opposes such a move.

Read more: Finland's stand on transaction tax postponed | Yle Uutiset | yle.fi

EU proposes 0.1 percent financial transaction tax

Reuters reported this morning that the EU's executive European Commission formally adopted on Wednesday plans for a financial transaction tax from January 2014, which it hoped would be extended worldwide.

The measure will need approval from EU states to become effective. "With this proposal the European Union becomes a forerunner in the global implementation of a financial transaction tax," EU Tax Commissioner, Algirdas Semeta, said in a statement.

"Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect -- a fair contribution from the financial sector. I am confident that our partners in the G20 will see their interest in following this path." Stock and bond trades would be taxed at the rate of 0.1 percent, with derivatives at 0.01 percent. The EU executive said the tax would be imposed on all transactions in financial instruments between financial firms when at least one party to the trade is based in the bloc.

EU-Digest