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Pension Funds Clash With Semeta on Transaction-Tax Harm

Pension Funds Clash With EU’s Semeta About Transaction-Tax Harm
The proposed levy would tax trades on stocks, bonds and derivatives with any connection to the nations that sign up to participate. Pension funds aren’t exempt from the effort, which has the backing of 11 nations. Photographer: Alessia Pierdomenico/Bloomberg

March 4 (Bloomberg) -- Opponents of a European Union financial-transactions tax say pension funds will be hurt even if their home governments don’t sign up.

Households across Europe will see retirement-planning costs rise if the EU imposes the transaction tax, according to APG, the largest Dutch pension fund. Brussels-based industry group PensionsEurope said the proposed tax, which aims to raise revenue for national governments, would have a heavy effect on taxpayers already reeling from bailout costs.

“Even small differences in return on long-term savings make huge differences in final pension outcomes,” Matti Leppala, PensionsEurope’s executive director, said in an e-mailed response to questions. “Taxes like FTT would hurt the returns and would have to be paid by current and future retirees.”

The proposed levy would tax trades on stocks, bonds and derivatives with any connection to the nations that sign up to participate. Pension funds aren’t exempt from the effort, which has the backing of 11 nations.

EU Tax Commissioner Algirdas Semeta said the levy would encourage pension funds to shun secondary markets and stick to long-term investments. “Our analysis demonstrates that pension funds do not actively participate in trading as such,” he said in a Feb. 25 interview in Washington.

APG disagrees. Pension plans trade frequently, in large volumes, to hedge risk and comply with investor-protection regulations, said spokesman Harmen Geers.

‘High Concern’

“It starts to become a matter of high concern when an EU commissioner wants to intervene in how pension funds invest,” Geers said by telephone. “Huge sums or notional sums are involved for a lot of trades, just to be able to comply with the requirement that a fund hedges its risk.”

Even if pension funds were exempted from the proposed levy, they’d still be affected by its effects on their trading partners, Geers said. “The cost would still be passed on to us, and therefore to our individual pension participants,” he said.

The EU on Feb. 14 unveiled its proposal for a 0.1 percent tax for stock and bond trades and 0.01 percent on derivatives trades with ties to participating countries. To prevent traders from escaping the levy by operating outside the tax’s zone, the EU plan invokes “residence” and “issuance” ties to firms in participating nations. That means, for example, that a French bond traded in London would still be affected.

Avoiding Exemptions

“A very important issue is that we do not create some exemptions, we do not create the possibility to circumvent the tax,” Semeta said this week. He said collection costs would not be excessive because most trades take place electronically.

The EU estimates the arrangement could raise as much as 35 billion euros ($45 billion) annually. To become law, the proposal must be approved by every nation that agrees to participate -- so far Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia. All 27 EU nations can sit in on the talks and have the option to join.

The proposals exclude certain types of trading: day-to-day transactions by individuals and non-financial firms; primary offerings of stocks and bonds; and trades with central banks, the European Stability Mechanism and other official institutions. The tax also excludes primary-market trades in units of collective investment funds along with certain restructuring operations.

Deutsche Boerse AG, the operator of the Frankfurt stock exchange, said the tax would undermine the financial stability it’s supposed to promote. The tax would be passed through to small businesses and pension investors who already have been victims of Europe’s sovereign-debt and banking crisis, said Deutsche Boerse spokesman Frank Herkenhoff.

“The impacts of this potential tax show a striking discrepancy between political objectives derived from the financial crisis,” he said in e-mailed comments on Feb. 27. It “will lead to a situation in which financial transactions will migrate to less regulated and non-transparent markets. Potential systemic risks will remain unchanged, but they will merely be detracted from the influence and control of the supervision.”

To contact the reporter on this story: Rebecca Christie in Brussels at

To contact the editor responsible for this story: James Hertling at

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