Ten euro zone countries agreed on Tuesday on aspects of a harmonised tax on financial transactions – and gave themselves until the middle of next year to reach agreement on remaining issues, including tax rates, the group said in a statement.
A financial-transaction tax (FTT) is intended to recover some of the public money used to support banks, to curb speculative trading and to unify the various levies already charged in several EU countries.
Talks on imposing one have been dragging on since 2011. In September of this year, ministers from Germany, France, Italy, Austria, Belgium, Estonia, Greece, Portugal, Slovakia, Slovenia and Spain said they had made progress and they expected a political agreement in December.
The statement said all share transactions, including intraday trading, would be taxed. The tax would be paid by traders in one of the countries participating in the scheme on shares issued in those countries.
“In order to sustain liquidity in illiquid market configurations, a narrow market-making exemption might be required,” said the statement. France had insisted on such an exemption.
The ministers said they would analyse whether it would be better to tax all shares, regardless of where they were issued.
Estonia, which did not sign the agreement, had been worried that because most of the shares traded by its financial institutions are issued outside the participating group, it would hardly get any revenue. At the same time, its traders would have an incentive to move their business elsewhere.
The ministers also agreed that derivatives transactions should be taxed “on the principle of the widest possible base and low rates and it should not impact the cost of sovereign borrowing”.
They said option-type derivatives should be taxed on the option premium. For other types of derivatives, the taxable base could be a term-adjusted or non-term-adjusted notional amount, depending on whether the instrument has a maturity date.
They also agreed to further analyse the impact of the tax on the real economy and pension schemes as well as the financial viability of the tax for each country.
“On the basis of these features, in order to prepare the next step, experts in close cooperation with the Commission should elaborate adequate tax rates for the different variants,” the statement said.
The proposal of the European Commission from 2013 envisaged a tax rate of 0.1 percent on share and bond trades and 0.01 percent on derivatives trades.
In September 2011, the Commission published a detailed proposal for a tax on financial transactions. For four years the member states have been unable to reach an agreement on how this new tax should be implemented.
Under this proposal, 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, Slovakia and Slovenia.