Wider Euro 'Tobin Tax' Will Net 35 Billion Euros
The euro zone's biggest economies would raise 30 billion-35 billion euros from their planned levy on financial transactions, according to an expansive European Commission proposal that ensnares trades executed in London, New York or Hong Kong.
The revised and strengthened Brussels draft plan, seen by the Financial Times, sets the stage for France, Germany and nine other euro area countries to agree the exact terms of Europe's first so-called "Tobin tax" on equity, bond and derivative transactions.
Brussels' drive for a Europe-wide tax opened an irreconcilable rift between EU members, forcing a euro zone vanguard to forge a smaller transaction tax bloc covering two-thirds of EU economic output but excluding the City of London.
This long-awaited Brussels blueprint, to be published within weeks, is the basis for talks between the 11 states, who no longer need permission to implement the levy from opponents such as Britain or Sweden.
The draft, prepared by the EU tax commissioner Algirdas Semeta, casts a wider net than expected by adding anti-avoidance measures to the original plan for an EU-wide levy, so that financial business does not decamp to safe havens.
Under the plan, a levy of 0.1 percent on stock and bond trades and 0.01 on derivatives is imposed on any transaction involving one financial institution with its headquarters in the tax area, or trading on behalf of a client based in the tax area.
Such a levy is dubbed a Tobin tax after economist James Tobin, who mooted a global tax on currency trades in the 1970s.
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In a bid to clampdown on avoidance, as "a last resort" the Commission proposes the tax should also apply to transactions based on where the financial product was issued, even if the parties trading it are in Asia, the US or Britain.
This would cover shares, depository receipts, bonds, money market instruments, structured products and exchange-traded derivatives "with a clear connection to a participating member state".
This requirement will mean "it will be less advantageous to relocate activities and establishments outside the FTT jurisdictions" since the financial instruments "will be taxable anyway".
While the proposal calls for the levy to be in place by January 2014, officials say the talks could take much longer and will partly depend on Berlin's appetite for a quick deal.
The 30 billion-35 billion euros generated is bigger than expected. The broad scope of the draft tax will come as a surprise to some member states and is still likely to trigger a lively debate, even within the Commission, according to senior European officials.
Extra exemptions are also included in the design of the tax, in part to soften the impact on pension funds and core economic activity. Tax is not liable on overnight repurchase agreements, the issuance of shares and units in retail funds known as Ucits and the exchanges of stock in mergers.
The proposal will absolve euro zone states or central banks from paying the tax when intervening in secondary sovereign bond markets, even though investors trading bonds would be liable. Spot currency transactions are also exempt.
To win political consensus for the deal, further carve-outs are likely. Those countries that have expressed interest in a transaction tax include Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.
An impact assessment for the EU-wide levy suggested it would hit long-term growth and cost jobs. An updated analysis is not being prepared for the euro zone-only tax.
If this design of the tax is adopted, it would mean offshoots of banks headquartered in the tax area - such as Deutsche Bank or BNP Paribas - as well as any trades undertaken on behalf of clients based in the 11 countries will be hit by the levy, even if they are trading in the City of London.
Any US or Asian institutions trading securities issued in France, Germany, Italy or Spain would also be taxed.
