- Participating nations haven't decided what trades to tax
- Open questions include how to treat pensions, document says
A proposed European financial-transactions tax is foundering as 11 participating nations try to meet a December deadline to decide how to charge levies on an array of financial products.
Nations still haven’t decided what trades to tax, how to calculate levies or how to treat pension funds and government bond-related transactions, according to a document prepared for technical talks Wednesday in Brussels. The slate of unsettled topics suggests nations will have trouble meeting the December deadline set earlier this month by Austrian Finance Minister Hans Joerg Schelling, who leads the negotiations.
“The FTT scope of transactions in shares has been subject to higher controversy,” according to the document, which was prepared for tax talks among all 28 EU nations and obtained by Bloomberg. The document asks whether the tax could work if it excludes pension funds, clearinghouses and market-makers, and whether such a design would raise enough revenue.
The 11 nations need to decide soon if they are going to press ahead or stop trying, Schelling said after Nov. 10 meetings in Brussels. Plans for a transaction tax already failed among all 28 EU nations, and the current talks are seeking a compromise among a smaller group that sought to press on under “enhanced cooperation” rules, which require consensus from at least nine nations.
Italy continues to push for the tax to include sovereign debt derivatives, while most other nations have agreed to exclude those derivatives along with government bonds, Schelling said at the time. Meanwhile, Slovenia and Estonia want the tax to have a broader cross-border reach to ensure it would raise sufficient revenue to be worthwhile, he said.
The Austrian finance ministry declined to comment Wednesday. EU finance ministers are set to gather next Dec. 7-8 in Brussels.
One way forward might be to exempt derivatives trades that are directly linked to government debt. The working document asks if this would create “substitution effects” as the market shifted into non-taxable transactions.
“Do you foresee any possibility of significant increase of focus by trades on exempted futures, forwards, options, credit default swaps etc. on sovereign bonds with a potential repercussion on the instability of underlying bond markets?” the document ponders.
Specific questions raised in the document include whether it makes sense to tax gross trades, as initially proposed by the European Commission, and whether the tax would be easier to implement if it exempted shares from outside the participating nations. It asks what kind of national options would be workable, and what methods would work best for derivatives trades.
The tax is aimed at proprietary trading, not market-making, according to the paper. At the same time, it asks whether exclusions should be limited to instruments that don’t trade frequently, or whether it’s possible to tell the difference: “would a market-making exemption be permissible if no objective criteria can be defined to distinguish market-making activities from taxable proprietary trading?”
On the subject of pension systems, the document asks whether they should be exempted or fall under a separate tax structure. The paper seeks to identify if such carveouts would “result in distortions between the different products used for old-age retirement provisions” and whether taxing pensions could be left as a national option.
The 11 nations signed up to the FTT talks are Austria, Belgium, Germany, Estonia, Greece, Spain, France, Italy, Portugal, Slovenia and Slovakia.