Although the Government may opt out of introducing the Financial Transaction Tax which is set to be adopted in a number of member states, the proposal being put forward by the European Commission may still have conseq-uences on the local economy.

Despite the outright opposition of several member states, the plans for the introduction of an FTT are far from dead. The original proposal tabled by the European Commission in September last year got caught up in a political impasse which has only recently been unlocked as some member states forged ahead with the discussions on the basis of what is known as the “enhanced cooper-ation procedure”.

This procedure can only be triggered in those EU policy areas where unanimity is required. Taxation is one of these areas and consequently, following the inability to reach a consensus, a number of member states have formally written to the European Commission asking for a decision enabling them to move ahead as a smaller group.

The Commission’s decision authorising enhanced cooperation for a Financial Transaction Tax was announced very recently and, in practice, it will allow 10 member states – Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain – to proceed with the introduction of a common FTT. This is an innov-ative development because although enhanced cooperation is already used in the fields of divorce law and the EU patent, it is now being used for the very first time in the area of taxation.

At this stage it is still early to assess the potential impact that this may have on the Maltese financial services industry. The Commission will be revising its original proposal once the ECOFIN Council and the European Parliament take their vote on enabling the splinter group of 10 member states to proceed with the legislative discussions. The Commission has stated that the new FTT proposal will be substantially based on its previous proposal, but it will be fine-tuned to include the fact that it will not be implemented by all member states.

The real matter of concern should however deal with the final design of the tax. The original proposal aimed to levy the transaction tax on any entity based in the FTT area, trading in bonds, shares and derivatives deals. This would have meant that no particular impact would have spilt over onto those financial centres not participating in the tax.

But if the Commission decides to encompass the application of the FTT in its new proposal to tax instruments issued in the FTT area, or derived from securities based in the FTT area, then the levy would effect a larger range of transactions, including Maltese trading parties that would have otherwise nothing to do with the FTT zone.

This could be the worst-case scenario for the Maltese financial and banking industry should the Commission substantially revise the tax design and once the enhanced cooperation discussions prove successful among the participating 10 members. Should this not be the case, then conversely the best-case scenario would be an added attraction for the Maltese financial jurisdiction, as financial trading business would certainly look more favourably to relocating outside the FTT area.

For more information on EU affairs related to business, contact the MBB on 2125 1719 or at info@mbb.org.mt. Alternatively visit www.mbb.org.mt.

Mr Cutajar is the Malta Business Bureau’s permanent delegate.