Brussels proposes tax on financial transactions

The European Commission has formally proposed a tax on financial transactions to be levied in all member states, aimed at raising €57 billion a year.

The announcement was made by Commission president José Manuel Barroso during his annual State of the Union address at the European Parliament yesterday.

If approved, the tax will be introduced in 2014 and the revenue will be shared by the EU and national governments.

That’s looking like a big if at the moment though, as several member states, including Malta, are in principle against the idea of the EU levying such a tax without it being introduced around the world.

One of the foremost opponents is the UK, which yesterday said it would “resist” the proposal.

France and Germany have been calling for the tax for some time, saying they would even consider introducing it only in the eurozone if some member states remain adamantly against the idea.

Malta, like the UK, argues that the tax will only make sense if it is also levied in other jurisdictions around the world to ensure a level playing field. The EU will be trying to convince its global partners, including the US, Japan and emerging economies, to follow in its footsteps during a meeting of G20 states in Cannes in November. However, the US has already come out against the idea.

Describing the new proposal as “only fair”, Mr Barroso said it was about time the financial institutions returned some of their dues.

“In the last three years, member states have granted aid and provided guarantees of €4.6 trillion to the financial sector. It is time for the financial sector to make a contribution back to society,” he said.

Details on the new tax proposal were given in Brussels following Mr Barroso’s announcement.

The tax rate would be 0.1 per cent on the exchange of shares and bonds and 0.01 per cent on derivative contracts.

The tax would be imposed on about 85 per cent of financial transactions that take place between financial institutions while citizens and businesses would not be directly taxed.

Both parties to the transaction would pay their share of the tax in their country of residence. House mortgages, bank loans, insurance contracts and other normal financial activities carried out by individuals or small businesses fall outside the scope of the proposal.

Part of the tax would go to the EU budget and another part could help to finance the budgets of member states.

Currently, the financial sector in the EU enjoys a tax advantage of approximately €18 billion per year because of VAT exemption on financial services.

The Commission says a new tax on the financial sector will ensure that financial institutions contribute to the cost of economic recovery and discourage risky and unproductive trading.

It argues that a harmonised tax at EU level is needed to create a solid internal market for financial services. It would prevent evasion, avoid double taxation and minimise distortions of competition within the EU’s single market.