EU to Propose Broad, Low-Rate Financial-Transactions Tax

The European Commission said it plans to propose soon a financial-transaction tax that targets a broad range of trades with low rates.

“The commission should make a proposal in the coming weeks,” David Boublil, a spokesman for the commission, told reporters today in Brussels. “It should be a tax with a very wide scope to cover a number of financial instruments but also with a low rate.”

While the commission, the European Union’s executive arm, hasn’t proposed an official date for such a tax to take effect, 2014 would be a “reasonable” time frame, Boublil said. The commission’s goal is to have proceeds of the tax available for the EU by 2018.

The tax rates will need to be high enough to apply consistently across all 27 member states and low enough that trades aren’t driven out of the region, according to a draft commission document obtained by Bloomberg News. The proposal will include different rates for various kinds of products.

Instruments covered by the proposal would include stocks, bonds, structured products and derivatives, which would be assessed based on their notional value.

Derivatives would be taxed at a lower rate than stock and bond trading because the notional values of derivatives contracts are so large, an EU official said today. In June, when the proposal was first under discussion, the EU had used sample rates of 0.1 percent for stock trading and 0.01 percent for derivatives trading. Final proposed rates have not yet been set and analysis is ongoing, the official said.

The financial industry opposes a transaction tax, saying it would encourage shifts in global trading patterns. It also could affect the overall economy as banks pass on costs to clients, said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a Washington-based trade group.

“The tax would drive transactions to other countries, thereby penalizing countries that adopt it,” Talbott said. Also, because the proposal includes stock purchases, he said “the tax would hit the average investor -- parents saving for college, older citizens saving for retirement, and newlyweds saving for a home.”

The EU announced plans for the transaction tax in August, following a 2010 proposal that failed to draw agreement among member nations. On Sept. 17, Belgian Finance Minister Didier Reynders and Spanish Finance Minister Elena Salgado said the euro area’s 17 governments should consider introducing their own tax if no agreement were possible at the global or EU levels.

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net

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