The proposal to introduce a tax on financial transactions (FTT) – or Tobin tax – across a number of EU countries by January 2014 is under pressure as Italy wants fundamental changes to the plan and the UK has launched a legal challenge in the European Court of Justice.
A statement on Saturday (20 April) from Italy’s permanent representative in Brussels, Ferdinando Nelli Feroci, said: “Transactions in state bonds should be excluded from the taxed instruments in the proposed Tobin tax.” He described this as a red-line, non-negotiable issue for Italy.
The European Commission formally proposed a tax on financial trading in 11 countries on 14 February, saying the levy could raise up to €35 billion each year and make banks more accountable following the 2008 banking crisis.
The plan was requested through “enhanced cooperation” by 11 countries, including Italy, representing two-thirds of EU economic output. They had already agreed to voluntarily press ahead with the tax after the bloc's 16 other members refused to back an earlier, pan-EU proposal.
EU officials confirmed that removing sovereign bonds from the scope would ‘considerably’ impact the anticipated revenue of the FTT, and also meant that agreement between the participating countries on what form the tax will take is still some way off.
“Bonds are a fundamental part of financial markets, and exempting them from the FTT them could cause market distortions and avoidance opportunities,” a spokeswoman for the European Commission told EurActiv.
The spokeswoman said that the proposal included important measures to protect the bond markets, “notably exempting the primary issuance of bonds from the tax. Government intervention in the secondary bond market is also exempt, to protect public debt management.”
She described suggestions that the FTT could be an influencing factor in how well government bonds trade as “quite far-fetched”.
Chancellor files complaint
Meanwhile, Britain has imposed another potential barrier through its challenge to the enhanced cooperation launched on Friday (19 April)
The FTT’s proposed "issuance principle" means a transaction will be taxed whenever and wherever it takes place, if it involves a financial instrument issued in one of the 11 countries.
This is aimed at stopping trades moving out of the so-called FTT zone to London or elsewhere and reinforces an earlier "residence principle" that says if a party to the transaction is based in the FTT area, or acting on behalf of a party based there, then the transaction will be taxed regardless of where it takes place.
UK Chancellor George Osborne said a formal complaint had been lodged at the European Court of Justice.
"We think that the financial transaction tax which the European Commission has put forward is not right for Britain," he told the BBC.
Timetable could now slip
"Britain doesn't want to take part but it also doesn't want to be caught in the effects of this tax being introduced by other countries. Let's be clear – financial transaction tax is not a tax on banks or bankers, it's a tax on pensioners and people with savings and investments.”
The case could interrupt progress with implementation of the FTT, if it has not been resolved before the tax is ready to put in place.
The Commission spokeswoman said that the EU executive had not yet seen the full details of the UK complaint, but was insistent that the legal action, and the Italian position, need not jeopardise the timetable.
“We don't see this challenge as any reason for the progress on a common FTT to be stalled,” the spokeswoman said.
Privately, however, another EU official acknowledged to EurActiv on condition of anonymity that “implementation by January 2014 could be a push”.
"[The FTT] could give a vital boost to the National Health Service, our schools, and the fight against child poverty in the UK,” said Owen Tudor, the spokesman for the UK-based Robin Hood Tax campaign group, who described the UK’s legal challenge as "against the wishes of people in Britain and across Europe."
"Not content with letting our banks off scot-free, Osborne now wants to prevent European countries from making their financial sectors pay to repair the damage caused by the crisis. Resorting to lawyers is the last refuge of a chancellor who has lost the argument," Tudor added.
"I am not against financial transaction taxes in principle," British Chancellor George Osborne said, noting that the UK put stamp duty on shares. "But I am concerned about the extra-territorial aspects of the European Commission’s proposals."
In September 2011, the Commission tabled a proposal for a common system of financial transactions tax.
Following lengthy discussions on the issue, it became clear in summer 2012 that unanimity between would not be reached within a reasonable period.
Nonetheless, a number of member states expressed a strong willingness to go ahead with the FTT. Therefore, in autumn 2012, 11 countries wrote to the Commission, officially requesting enhanced cooperation on the financial transaction tax to be authorised, on the basis of the Commission's 2011 proposal.
On the basis of a further assessment, in October 2012 the Commission proposed a decision to allow enhanced cooperation on the FTT. This was backed by the European Parliament in December and agreed by European Finance Ministers at the ECOFIN in January 2013.
The tax would be set at 0.01% for derivatives and 0.1% for stocks and bonds.
- 2013: Directive will continue to be discussed by member states, with a view to its implementation under the 'enhanced cooperation' procedure. All 27 may participate in the discussions on this proposal. However, only the 11 participating states will have a vote, and they must agree unanimously before it can be implemented.
- 1 Jan. 2014: FTT due to come into force within those countries joining in the enhanced co-operation procedure.