European financial transaction tax back on the table

Portugal is trying to reopen in the Council the debate on the proposal for a financial transaction tax at the EU level. The debate should focus on setting the conditions of taxation and avoid political issues.

A common system for the taxation of financial transactions has been under discussion at the EU level since 2011. The proposal put forth at that time envisaged a tax of 0.1% on the transfer of shares and bonds, and 0.01% on financial transactions in derivative instruments. So far, political consensus has not been reached among all member states. In 2013, eleven of them moved ahead with so-called enhanced cooperation on a legislative proposal that would apply only to this group of states. During the negotiations, Estonia withdrew from the group. The Czech Republic did not participate, as it persistently has been against the introduction of such a tax. 

The most recent significant development came in the form of a proposal from the German finance minister in December 2019, for a revised financial transaction tax directive to be adopted by the 10 remaining states under enhanced cooperation. The revised proposal included an optional exemption for pension schemes and a new system for the mutualisation of financial transaction tax revenues, as well as an increase in the rate. At the same time, the financial transaction tax was mentioned as a possible new EU resource as part of the EU’s long-term budget.  In the meantime, several EU member states (France, Italy, and Spain) have introduced unilateral equivalents of a financial transaction tax.

In an attempt to move the legislative proposal further, the Portuguese presidency of the Council has proposed a discussion on the design of the new tax at the EU level. The approach suggested by the presidency should allow for the gradual implementation of the tax, based on the models developed and already tested by France and Italy. In Portugal's view, a step-by-step approach would allow:

  • EU member states and the EC to methodically evaluate the economic impact of the financial transaction tax
  • tax administrations to progressively develop efficient and effective collection procedures
  • market structures and financial institutions to gradually build up the knowledge and infrastructure required to facilitate tax compliance.

All EU member states have been invited to provide views on the proposed design of the financial transaction tax, and on whether the French and Italian experience would represent a solid basis for a gradual European approach on the tax (either in the context of the enhanced cooperation or EU-wide). A proposal to include the transactions in equity derivatives in the scope of the financial transaction tax (in line with the Italian model) is also a part of the discussion. It is not yet clear how the member states will react to the renewed discussions and whether the financial transaction tax has a chance of being adopted. The position of the Czech Republic has also not been made available yet.

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