Summary of key points of the financial transaction taxation legislation adopted by the European Parliament

After more than 10 years of civil society campaigning, reinforced by a strong EP position in 2010/11, and Eurobarometer showing large support, changes of attitude of the centre right in Germany (and France), the COM made a volte face in the Summer of 2011, and proposed a far reaching directive for the taxation of financial transactions (FTT).It is widely recognised that the financial sector is vastly under-taxed, and hardly anybody opposes to idea of introducing some form of taxation. The beauty of the FTT is – and that is precisely the reason why some actors still nonetheless oppose it – that it offers a double dividend:
Additional revenue of up to 57 Euro Billion per year can be generated in the EU 27 (more than other financial taxation proposals being ventilated) and Financial regulation, as certain forms of harmful trading activity would become in-attractive.

In addition, the Commission proposed a link with EU own resources:
2/3 of revenues go to EU budget and 1/3 of revenues directly to national budgets. The share diverted to the EU shall be credited to the Member States. In that way, revenues would reduce overall and automatically the balancing GNI based national contribution of Member States to the EU budget.

Keypoints for the Green Group

– The residence principle as proposed by the COM is considered not tight enough to avoid evasion, hence we suggested to complement it with the issuance and ownership principles as suggested by several academics supporting the FTT. The proposal was broadly adopted.

– On the use of the revenue: We made sure that the final report would give a positive signal for the financing of global public goods such as development cooperation and the fight against climate change. Furthermore, our demand that the revenue shall flow to the EU rather than national budget is covered by a somewhat neutral reference to the own resources proposal.

– The COM excluded on legal grounds (but with no convincing legal expertise transmitted) currency spot transactions which means taking the Tobin Tax out of the FTT. Nevertheless, presenting differing legal opinions helped us to convince the members to include the Tobin Tax.

– Enhanced cooperation: Given the difficulties in Council to agree at the EU 27, level, the Parliament report, gives a positive signal towards enhanced cooperation.

– High Frequency Trading (HFT): The European Parliament has accepted our demand for covering canceled transactions in the review clause. HFT is of course covered if transactions are executed – which is key to regulating financial markets – but much of the casino game consists of placing huge numbers of orders and retracting them.

On the negative sideThe EP suggests to exempt pension funds. In the compromise negotiations we suggested to grant a transition period within which pension funds could have adjusted their investment strategy in view of long term investments, but this was not acceptable to EPP and ALDE (given the substantial propaganda on this in various Member States). It is important to highlight that according to a recent OECD study(1), between 2008 – 2010 pension funds with conservative investment portfolios (generally correlating with low transaction frequency) performed better, i.e. the FTT would incite pension funds to follow strategies with higher returns!

The attempt of conservatives and liberals to exclude all investment funds (UCITS) from the scope of the FTT could be prevented by a left majority.

(1) OECD, Pension Markets in Focus: http://www.oecd.org/document/35/0,3746,en_2649_34853_36082019_1_1_1_1,00.html