European Financial Transaction Tax set for revival

18 December 2019

Despite multiple years-long setbacks on developing an EU-wide common system of financial transaction tax (FTT), a 10-strong coalition of the willing is about to embark on the journey. While the FTT is set to be limited to participating countries, what will it mean for business and future EU tax policy? 

In September 2011 the European Commission, under then President José Manuel Barroso, proposed the introduction of an EU-wide, common system of financial transaction taxation (FTT) in an attempt to harmonise the way in which financial institutions pay their taxes and how member states provide tax incentives to them.

With a majority of member states, including Ireland, the Nordic and Visegrad countries blocking any progress on the proposal, a 10-strong coalition of the willing[1] agreed to unilaterally proceed through a so-called ‘enhanced cooperation’ instrument in 2013. Under the leadership of Germany and France, the 10 countries since discussed the development of a French-style model, in addition to the possible mutualisation of the revenues among the participating member states as a contribution to the EU budget.

According to a note published last week by German Finance Minister Olaf Scholz, the German Ministry of Finance have now provided their partners with a final draft proposal, requesting consent for tabling the draft for discussion at EU-level.

According to the German note, and based on the French example, anyone buying shares in companies valued at over €1 billion would pay a 0.2% tax on the transaction value. Although there exist a number of notable exemptions, such as IPOs or pension funds, the FTT will be applicable to publicly traded companies headquartered in one of the participating countries.

Although the initiative would only be applicable to participating countries, and lie outside the formal legislative EU framework, it is important to note in the broader context of the simmering tensions within the ECOFIN Council as well as between the EU’s institutions around closer EU harmonisation on questions of taxation.

With a number of contentious files, such as a digital services tax or a common corporate tax base (CCTB), effectively being blocked by member states using the body’s unanimous decision-making rule, calls have grown in recent months, including from the European Commission, for the abolition of the member state veto on tax matters.

The FTT coalition’s proposal for moving progress on a financial transaction tax outside of the regular EU legislative process, should broadly be considered as another step by a number of member states towards further tackling intra-EU tax competition through harmonising tax policy at the EU level.     

President Ursula von der Leyen’s Commission is placing key priorities on fair and effective taxation through leading actions on an EU digital tax and progressing work on CCCTB and tackling tax fraud in the EU. As such, EU Finance Ministers can expect to be placed under significant pressure from the European Commission, MEPs and civil society to both move the ECOFIN’s decision making process to qualified majority and truly progress work on important and necessary tax legislation.  

[1] FTT10 countries are Belgium, Germany, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, Slovakia