October 9, 2012 4:45 pm

Financial transaction tax gains approval

The EU’s effort to introduce a tax on financial transactions was given new life on Tuesday after 11 eurozone countries agreed to impose the levy, using a loophole bloc rules that allows groups of countries to move forward without the agreement of all 27 members.

The Franco-German drive to introduce the tax was almost stymied at the eleventh hour after it appeared that it would fall short of the nine countries needed to launch “enhanced co-operation” among those wanting to move ahead under an EU banner.

But at a meeting in Luxembourg of EU finance ministers, Italy, Spain and Slovakia said they would join the scheme.

The 11 countries have not finalised the exact rate nor the scope of the new levy, although it is likely to be in the region of 0.1 per cent on share and bond transactions and a lower rate on derivatives.

The deal will mean many of Europe’s biggest stock markets – including Frankfurt, Paris, Milan and Madrid – will be covered by the tax while many of their continental competitors, including London, Amsterdam and Warsaw, will be outside the scheme.

“With the introduction of a financial transaction tax the liquidity on the Vienna stock exchange would dramatically decrease,” said Michael Buhl, joint chief executive of CEE Stock Exchange Group, which owns the Austrian bourse. “This in turn would lead to a lower tax base in Austria and thus lower tax revenues.”

The breakthrough on the financial transaction tax was particularly important to Berlin. Angela Merkel’s government had promised opposition parties it would get EU agreement on the levy in exchange for their backing for the eurozone’s new fiscal discipline treaty.

“The financial transactions tax is about fair taxation, smart taxation and a stronger, more co-ordinated approach to taxing the financial sector,” said Algirdas Semeta, the European commissioner in charge of tax policy.

France and Germany had received backing from Belgium, Austria, Portugal, Greece, Slovenia and Estonia early in the process but struggled to find a ninth candidate before Tuesday’s deal.

Although the European Commission this year proposed a 0.1 per cent tax for stocks and bonds and a 0.01 per cent levy on derivatives, the 11 countries will use that plan only as a template and could revise the rates. It remains undecided how the tax revenue will be used.

“It is likely to encourage trading on unregulated over-the-counter trading venues rather than driving transactions to exchanges as market players seek to avoid the tax, Deutsche Börse said. “Additionally, as it stands, the tax will create an environment which practically encourages regulatory arbitrage.”

Maria Fekter, the Austrian finance minister, said: “We have really only created the on-ramp to the highway. We still have to go a long way to agree on a model, on how it should be formulated in detail, which products. This should be worked out by Christmas.”

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