Jose Manuel Panero Rivas, LL.M
MA in Economics for Competition Law candidate, King’s College London
The discussions held on the possibility of introducing an EU-wide Financial Transactions Tax (‘FTT’) [i] is one of the most interesting political battles taking place in Brussels in recent times (and there have been some). While certain Member States defend the introduction of such a tax at EU level – and some of them have even gone as far as announcing the unilateral introduction of similar taxes – other Member States fiercely oppose it.[ii]. In their turn, the European Commission and the European Parliament seem to strongly support the novel instrument.
It should be recalled that on 28 September 2011, the European Commission submitted to the Council a proposal of Directive for introducing an EU-wide tax on financial transactions (‘the Proposal’). [iii]
Some highlights of the Proposal include the following:
- The new tax would be applied to financial transactions where at least one party is established in a Member State and a financial institution established in a Member State is party to the transaction, acting for its own account, the account of another person or in the name of a party to the transaction.[iv]
- Financial transactions for these purposes include: (i) the purchase and sale of a wide range of financial instruments (ii) the conclusion/modification and trading of derivatives and (iii) transfers of financial instruments between group entities, which are no a purchase and sale.[v]
- The tax rates suggested in the proposal (above which there would be room for manoeuvre for Member States) are as follows: (i) 0.01% in respect of transactions related to derivatives and (ii) 0.1% for other transactions.[vi]
- The new tax would replace any previous national tax on financial transactions (other than VAT).[vii]
- An overview of the taxation of transactions is the following:
[source: European Commission´s presentation of the Commission proposal for a Council Directive on a common system of FTT][viii]
The Commission submitted that the aim of the Proposal[ix] is to ensure that the financial sector makes a fair contribution to the fiscal consolidation in the Member States, to set up a harmonised framework that will help reducing competitive distortions, to discourage potentially risky activities, to complement regulatory measures aimed at avoiding future crisis and, (v) to promote common rules for the introduction of FTT at global level.
The proposed Council Directive would be enacted under Article 113 TFEU. This Article, which provides a legal basis for the harmonisation of tax systems of Member States, reads:
‘The Council, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.
Accordingly, under the special legislative procedure established in Article 113 TFEU, it is the Council which should unanimously agree on the establishment of the FTT, and the European Parliament and the Economic and Social Committee should only be consulted.
Since the Proposal was submitted to the Council, it has been debated twice as an ‘item B’ on the Council´s agenda (on 8 November 2011[x] and on 11 March 2012[xi]). It seems that no agreement has been achieved in these formal meetings of the Council. However, following the meeting of the Council of 11 March and the lack of consensus within it, the Commission and the Parliament have issued statements in support of the Proposal.
On the one hand, the Commission has tried to push ahead by highlighting the savings that EU Member States would make from the establishment of the FTT. On the basis of its Proposal, the Commission estimated total savings for EU Member States of around €81 billion.[xii]
Interestingly, the Commission is proposing that 1/3 of the money would go to national administrations and 2/3 of it to the EU budget, creating a new own resource for the Union. The latest part would amount to €57 billion, therefore reducing Member States contribution to the budget in the said amount. This would probably make the proposal particularly appealing for Member States facing severe austerity measures.
In turn, the European Parliament seems to be very favourable to the establishment of the FTT. This is perceived by the EU Chamber as a measure having broad popular support. Bearing this in mind, European Parliament President Martin Schulz suggested, on 28 March 2012, the possibility of making the first use of the European Citizens’ Initiative in the field.[xiii] Remarkably, it is said that even 2/3 of the UK citizens would support the introduction of the tax.[xiv]
Should the European Citizens’ Initiative go ahead, the position of the Commission would probably be strongly reinforced from a political point of view. If the Proposal of the Commission is based not on its own motion but on a proposal of EU citizens, the position in the Council of those Member States opposing the FTT would be very much compromised. [xv]
However, the latest news coming from the informal meeting of the Council held on 31 March 2012 seems to point to a different solution than the one contained in the Proposal, which would be a far less ambitious establishment of an activity tax, or a floor of stamp duty tax similar to those already existing in some Member States, across the EU.[xviii]
Whichever the solution to the conflict will be, this is likely to provide interesting news from different aspects of EU Law. On the one hand it would be interesting to see the use of Article 113 TFEU and its possible challenge before EU Courts.[xix] The possibility of starting an enhanced co-operation procedure on the issue – perhaps between Eurozone members – has been always flying around. However, this would be probably detrimental for those countries establishing the tax in comparison to those that would not introduce it and have a leading financial industry, namely the UK.
Besides that, if the suggestion of the EP President gains traction, this could well be the first successful use of the European Citizens’ Initiative, a major event in the EU construction.
The issue will be in the Council agenda later in May or June, keep your eyes open.
[i] The idea of a “Tobin Tax”, suggested by the Nobel-awarded economist James Tobin was originally defined as a tax on all spot conversions of one currency into another. The tax is intended to penalise short-term transactions involving foreign currencies and its objective, which is to cushion exchange rate fluctuations, is different to the one of the FTT proposed by the Commission. In turn, the introduction of a so-called ‘Robin Hood Tax’ was promoted by a campaign launched in the UK in 2010. This tax would be imposed on the trading of a wide range of financial products, affecting individual investors, banks, hedge funds and other financial institutions. The campaign is sponsored by various prominent charities, aiming to raise money for international development, to tackle climate change and to protect public services. The Commission’s proposal can be seen, to a certain extent, as an original mix of both taxes.
[iii] Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC [COM(2011) 594 final] available at <http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/com(2011)594_en.pdf>
[iv] The concept of financial institution for these purposes will be broadly defined (see Article 2.1(7) of the Proposal of the Commission
[v] See Article 2.1 (1) of the Proposal of the Commission
[vi] See Article 8.2 of the Proposal of the Commission
[vii] Article 12 of the Proposal of the Commission
[viii] Page 14 of European Commission presentation of the Commission proposal for a Council Directive on a common system of FTT, available at <http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/ftt_proposal_en.pdf >
[ix] Supra note vi, page 2
[x] See press release of the Council of 8th November 2011 (Economic and Financial Affaires), available at <http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/11/410&format=HTML&aged=1&language=FR&guiLanguage=en>
[xi] See press release of the Council of 13 March 2012 (Economic and Financial Affaires), available at
[xiv] See “Commission’s financial transaction tax – a winner?” available at <http://www.publicserviceeurope.com/article/575/commissions-financial-transaction-tax-a-winner>
[xv] On the European Citizens’ Initiative see the previous post “Lets have our EU laws? European Citizens’ Initiative is ready to be used” in this blog at <http://kslr.org.uk/blogs/europeanlaw/2012/04/07/lets-have-our-eu-laws-european-citizens-initiative-is-ready-to-be-used/>
[xvi] See Opinion of the Committee of the Regions a Common System of Financial Transaction Tax, 15-16 February 2012, available at <http://coropinions.cor.europa.eu/coropiniondocument.aspx?language=en&docnr=332&year=2011>
[xvii] See Opinion of the European Economic and Social Committee on the Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC COM(2011) 594final, available at <http://eescopinions.eesc.europa.eu/eescopiniondocument.aspx?language=en&docnr=818&year=2012>
[xix] Such challenge could come from a direct action for annulment under Article 263 TFEU before the CJEU or indirectly from an objection of illegality under Article 277 TFEU before the CJEU or a preliminary ruling posed by a national court to the CJEU under Article 267 TFEU.