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FTT- Govts. realise possibility of bullet in foot

Documents received by Reuters late last week point to the possibility that some derivatives may be exempted from the controversial and consequential FTT, the 11 eurozone nation[1] “Tobin” tax. 

“It should be considered whether some categories of derivatives should not be included or if their taxation should be postponed, given for example their nexus with the government bonds’ market and related impact on it,”

Perhaps mesmerised by the projected EUR 57 bn.[2] p.a.  income, albeit from a 90% reduction in derivatives transactions[3], some Governments have somewhat belatedly realised that the tax may adversely affect their own debt issuance. Although it’s not possible to say with any certainty, we may surmise that this is more of a concern for Greece, Portugal and Spain than Germany. The document also raises substantial questions as to when the tax should be levied: when a derivative contract is traded, written or expires. In addition to taxing derivatives, the document floats the possibility of exempting taxation on the following categories: corporate bonds, sovereign debt traded on secondary markets and securitised debt.

Given that the original proposal contained carve-outs for: mortgages, smaller corporate loans, capital raising, spot FX transactions and others; wholesale adoption of the documents’ suggestions would severely limit the FTT’s scope and consequent revenue. The proposal by the 11 states represents 90% of Eurozone GDP, approved by the Parliament under the enhanced cooperation protocol in June 2013, it must be unanimously approved by the participating states before coming into force.  The pre-meeting documents may presage a distinct lack of unanimity among the FTT 11.

Although perhaps not in direct response to the article, with coincident timing Algirdas Semeta the European Commissioner for tax affairs, was interviewed by Austrian paper Der Standard on Saturday,

“The worst-case scenario would be if members agree to an FTT but it is so full of holes that financial transactions shift abroad… One way out would be to phase in individual elements of the FTT over time.”

[1] Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain.

[2] European Commission (28 September 2011). “Executive summary of the impact assessment”. European Commission. Retrieved 26 February

[3] Based on Sweden’s experience in imposing a phased-in FTT from 1984

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