Accept All Cookies
On 3 December 2015 the Luxembourg President of the Council of the European Union released a “state of play” announcement on the progress made during the course of this year by the ten European Union participating member states (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain)1 towards the introduction of the European financial transaction tax (the “FTT”).
The “state of play” announcement was followed, on 8 December 2015, by a statement at the ECOFIN meeting in Brussels by the ten participating member states setting out their agreement on features that should be present in the final form of the FTT (the “December Statement”).
This Client & Friends Alert briefly considers the main features of the December Statement, and contemplates future developments regarding the implementation of the FTT. In its current form, the proposed FTT would apply to certain transactions in respect of financial instruments (including shares and derivatives) where at least one party is a financial institution, and at least one party is established in a participating member state, or the financial instrument in which the parties are dealing is issued in a participating member state. The potential breadth of the proposed FTT, notwithstanding only ten participating member states are currently cooperating to introduce the FTT, means that the implementation of the tax would have a potentially significant impact on the European financial sector and a wide group of financial institutions.
The December Statement offers the clearest summary to date of how currently outstanding issues regarding the form, scope and extent of the FTT are likely to be resolved. However, the technical details of the resolution of those issues still remain absent.
Broadly, the December Statement identifies that the form of the FTT to be agreed by the participating member states should have the following features:
A number of key themes can also be discerned from the December Statement:
2015 has been an important year for international tax developments.
Significant progress has been made by the OECD under the Base Erosion and Profit Shifting Project, and this is likely to lead to many changes in how cross-border financing and commercial transactions are structured. Technical discussions regarding the proposals to establish a common consolidated corporate tax base in the European Union continue to be progressed politically.
In this context, the progress of the FTT towards implementation has been less visible and less public.
The December Statement is a timely reminder that although significant technical and macro-economic issues remain before the FTT can be introduced as a workable tax, the political will to achieve this aim remains present in the remaining ten participating member states.
It remains a concern, however, that key technical questions regarding the scope of the FTT (such as whether a resident or issuance principle applies for the determination of which transactions are subject to the tax) still remain almost three years after the Commission’s proposals of February 2013. It also appears likely that other, more political, obstacles to the introduction of the FTT (including the potentially adverse impact on European pension schemes, and the final hypothecation of FTT revenues between participating member states) may continue to contribute to the delay of the implementation of the FTT.
1 Estonia was originally one of the participating member states, but is understood on 8 December 2015 to have declined to participate further in the implementation of the FTT through the enhanced cooperation procedure.
2 A detailed Clients and Friends memorandum regarding the proposed form of the FTT was published on 14 February 2013 and is available here.
3 A Clients and Friends Alert concerning the United Kingdom’s filing of an application to annul the European Council Decision (2013/52/EU) authorising the introduction of the FTT through the enhanced cooperation procedure was published on 14 February 2013 is available here.