France tries to unblock European FTT negotiations

[Parti socialiste/Flickr]

Michel Sapin has tried to move the FTT debate forward. [Parti socialiste/Flickr]

French Finance Minister Michel Sapin has urged his European counterparts to make derivatives play a very small part in the tax base for the Financial Transaction Tax. Sapin hopes this will unblock negotiations on the project, which has been at an impasse for 2 years. reports

The European Financial Transaction Tax is at a standstill. The thorny subject was taken off the agenda of the latest Ecofin Council in October, and did not feature in the meeting of French and German Finance Ministers on 20 October in Berlin.

The dossier will make it back onto the agenda for the meeting of EU Finance Ministers in Brussels on 7 November, and the member states have given themselves until the end of December to define the scope of the European tax, which they hope to launch in 2016.

“French mini-tax”

The Financial Transaction Tax has been in force in France since 2013. Considered a “mini-tax” by some, the FTT takes 0.2% on share purchases.

At a press conference organised by several French NGOs, Arielle Malard de Rothschild, Managing Director of Rothschild and President of CARE France, said “I do not think the tax we have put in place in France is a model for efficiency. It will have to evolve in line with the European FTT negotiations.”

And with good reason. While the French FTT is only expected to raise around 800 million euros this year, a tax applied to shares, bonds and derivatives across the 11 European countries involved could see its revenues soar.

Depending on the scope of the FTT, it could raise between 9.6 and 24.4 billion euro per year in France, according to estimates from the consulting firm SIA Partners.

The Copenhagen Institute estimates that FTT revenues in Germany could be between €17 and 28 billion.

French ambiguity

If the advantages in terms of revenue are plain to see, the French government is eager not to push the FTT too far, fearing that traders will make their financial transactions elsewhere, causing a collapse in the derivatives market, a very important sector for French banks.  

>> Read: Financial lobbies angry at FTT (in French)

“France is one of the greatest advocates of the Financial Transaction Tax, but also one of the main opponents of making it an ambitious tax,” said Alexandre Naulot, of Oxfam France. “The enhanced cooperation is now at risk because of the French position,” he added.

In an editorial published in Les Echos on 4 November, the French Finance Minister, Michel Sapin, put forward a compromise whereby shares and bonds would be taxed at 0.1%, and derivatives at 0.01%, a less ambitious project than the initial European Commission proposal.

The Minister said that an agreement “is within reach,” and proposed “taxing transactions on quoted shares […]. States could extend the tax to unquoted shares if they so wished”. Sapin also recommended applying the tax to only the most speculative of derivatives: the CDS, or Credit Default Swap.

Residency vs place of business

Another new proposal put forward by the Finance Minister was that the tax should be collected on transactions issued by companies “based in one of the 11 participating countries […] regardless of where the transaction takes place or where the financial intermediary is based”.

Some members of the enhanced cooperation group, particularly the smaller member states lacking in large businesss, would prefer the tax to be collected in the country where the transaction takes place. This would allow them to benefit from the FTT.

To reassure these smaller countries, the French Minister proposed the application of a “residency principle” to decide who collects the tax. In the case of a “Portuguese bank buying shares in a French business, the proceeds would go to Portugal; if these same shares were bought by a French bank, or a bank from outside the 11 participant countries, the proceeds would go to France,” he explained.

2014 target increasingly remote

The meeting on 7 November may be the last chance for the 11 member states participating in the enhanced cooperation project to keep their objective of reaching an agreement by the end of the year.

But the chances of an agreement being signed by the end of December appear slim. According to an internal document from the German Federal Ministry of Finance, there is still “quite a distance” separating the positions of the member states. This means the target date of the end of December 2014 will be “difficult, if not impossible to achieve,” the document said. 

In September 2011, the Commission published a detailed proposal on a tax on financial transactions.

Under this proposition, the FTT would apply to all financial transactions, except the primary market and bank loans. Transactions on shares and bonds would be taxed at 0.1%, and derivative products at 0.01%. The FTT would have to be paid if at least one of the parties is based in the EU.

As the member states have failed to come to a global consensus, 11 countries have launched an "enhanced cooperation" mechanism, which will allow at least 9 member states to progress on issues of common interest, without being held up by the other countries.

The 11 countries working on the Financial Transaction Tax project are: France, Germany, Austria, Belgium, Spain, Estonia, Greece, Italy, Portugal, Slovenia and Slovakia. 

  • 7 November: meeting of Ecofin Council in Brussels
  • End of December 2015: provisional date for obtaining a compromise on FTT
  • 2016: implementation of FTT

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