On January 27, 2015, at the initiative of France and Austria, ministers of 10 EU Member States issued a joint statement in which they reiterated their commitment to reach an agreement on a financial transaction tax (FTT). The Member States hope that the statement will give fresh impetus to the issue.

Background

In September 2011 the European Commission released a proposal for a directive implementing an EU‑wide FTT. After it became apparent that unanimous agreement of EU Member States was not achievable, the European Commission presented a modified proposal on enhanced cooperation to eleven Member States at the beginning of 2013. The content of the proposals was discussed in our memorandums of September 29, 2011 and February 19, 2013.

Since then the leading group of 11 Member States has sought to achieve consensus on an FTT, and has been looking into possible modifications to the European Commission’s proposal. The anticipated introduction date was thereby postponed from January 1, 2014 to January 1, 2016. In their joint statement of May 6, 2014 the leading group indicated that it was focusing on a progressive implementation of the FTT, starting with shares and certain derivatives. Participating Member States would be allowed to impose the FTT on other products in order to maintain existing taxes.

During the meeting of the EU Council of Economics and Finance Ministers (ECOFIN) on December 9, 2014 the current state of affairs was once again discussed, but no agreement was reached. At issue in the negotiations are matters such as whether financial instruments such as derivatives should be covered by the FTT, whether the FTT should be levied on the basis of the residence of the financial institution or the place where the instrument is issued, and what would be a workable collection mechanism.

Joint statement

The joint statement of January 27, 2015 does not contain any technical details. However, according to the leading group the FTT should now be based on the widest possible tax base and low rates, while taking account of the impacts on the real economy and the risk of the relocation of financial transactions. The European Commission is invited to be more involved and the commitment to transparency regarding the non-participating Member States is reiterated. The anticipated implementation date remains January 1, 2016.

Of the original 11 Member States in the leading group, only Greece has refrained from committing itself to the agreement.

Position of the Netherlands

The Netherlands has not joined the enhanced cooperation on an FTT. It has made its participation conditional on pension funds being exempted from the tax, that there is no disproportional overlap with the current bank tax and that the revenue flows back to the Member States. The previous proposal did not meet the above conditions as pension funds would be subject to the FTT.

Next steps

In light of the background to the FTT outlined above, it is difficult to anticipate how the process will proceed and whether (and if so when) an FTT will be introduced. The joint statement of January 27, 2015 has in any case made clear that an FTT is still feasible. The leading group intends to report on its progress at one of the upcoming ECOFIN meetings.

We will, of course, keep you informed of developments. If you would like more information on this matter, our tax advisors will be happy to be of assistance.

Click here to download the memorandum in pdf format