European finance ministers are designing a financial-transaction tax on equities and derivatives that could start in 2016 for the 11 nations that have signed up to participate.
French Finance Minister Michel Sapin said details could be presented by the end of this year, to take effect at the start of 2016. “A critical mass” is emerging among nations including France, Germany, Italy and Spain, he told reporters yesterday after euro-area ministers met in Brussels.
Work on a transaction tax for the 11 willing countries began more than a year ago, after a European Union-wide proposal failed. So far, the participants have remained committed to the cause without finding agreement on how the tax could work.
The participants haven’t been able to agree on whether to tax all derivatives, only equity derivatives or none at all. Nations pushing for the levy are also split over who should get to collect it, a trading firm’s country of origin or the nation where trading takes place. Smaller countries have generally sought a broader tax that raises more revenue, while bigger nations have been willing to start on a smaller scale.
EU Tax Commissioner Algirdas Semeta said in Vilnius yesterday that there isn’t a common approach on how to handle derivatives. Sapin said further work would pin down how the tax’s scope would take shape.
More Than Shares
“It won’t just cover shares, but also a certain number of derivatives which we now have to define,” Sapin said.
All 28 EU nations will take part today in a discussion on the tax plan’s state of play, allowing non-participating countries like the U.K. to raise concerns about potential spillover effects. A May 2 document prepared by Greece, which holds the EU’s rotating presidency, said more technical work will be needed.
A common European financial transaction tax could drive away companies and hurt the growth outlook, Maltese Finance Minister Edward Scicluna said. Malta, which isn’t one of the 11, shares the participants’ concern that an improperly designed tax could cause economic harm, he said in an interview in Brussels.
“Talking to countries who are in favor, we have the same concerns: We both wish that the business won’t go elsewhere,” Scicluna said. Germany and other supporters have made clear that they’ll withdraw support if the design looks likely to drive firms away from the region where the tax takes effect, he said.
Germany, France, Spain, Italy, Belgium, Austria, Portugal, Greece, Estonia, Slovakia and Slovenia are the countries that have signed on to the transaction-tax effort. Backers say the tax is needed to raise revenue and limit risky market speculation, and that it could expand over time.
“We know that we can only proceed step by step,” German Finance Minister Wolfgang Schaeuble said yesterday. “The possibilities, the situations and the interests of the individual participating states are so different that only a limited taxation of shares and some derivatives is possible in a first step.”
Fewer participating nations creates a higher risk that trades will flee from the tax zone, Scicluna said. He said this is economic activity that most nations can’t afford to lose.
“We, a small island, rely on diversified sectors,” Scicluna said. “We can’t afford that any sector -- whether its financial, manufacturing, other services, maritime -- is losing competitiveness to other countries.”
A European financial-transaction tax would do economic damage even if its scope were narrowed from initial proposals, according to the employers’ federation BusinessEurope.
“Even a narrowly scoped FTT will still have a negative impact on growth and jobs, while leaving the door open for further taxation through a step-by-step approach risks creating unnecessary uncertainty for investors,” BusinessEurope said in letter to EU finance ministers.