On 14 February 2013, the European Commission adopted a new proposal for a financial transaction tax (FTT). The proposed directive was requested by 11 member states that wish to proceed with this tax, which was first put forward by the Commission in September 2011. At that time, a lack of consensus between all 27 member states prevented further progress. The tax will therefore now be implemented under ‘enhanced cooperation’, applying only to the 11 countries in question, which nevertheless represent two thirds of the EU’s GDP. The tax is expected to deliver annual revenues of €30-35bn.
The objectives of this new directive remain the same as those of the original proposal. They are threefold: 1) to avoid the fragmentation of the Single Market that an uncoordinated patchwork of national FTTs would create 2) to ensure that the financial sector makes a fair and substantial contribution to public finances and covering the cost of the crisis and 3) to create disincentives for speculative financial transactions which do not contribute to the efficiency of transactions carried out by financial institutions on all financial instruments and markets with an established link to the FTT-zone, with tax rates of 0.1% for shares and bonds and 0.01% for derivatives. Day-to-day financial activities of ordinary financial markets or to the real economy.
The scope of the FTT also mirrors the 2011 proposal. Taxes will be levied on all citizens and businesses are excluded, in order to protect the real economy. As before, the ‘residence principle’ will apply: the tax will be due if any party to the transaction is established in a participating member state, regardless of where the transaction takes
place. This is the case both if a financial institution engaged in the transaction is, itself, established in the FTT-zone, or if it is acting on behalf of a party established in that jurisdiction. As a further safeguard against avoidance of the tax, the new proposal adds the ‘issuance principle’: financial instruments issued in the 11 participating member states will be taxed when traded, even if those trading them are not established within the FTT-zone. Furthermore, explicit antiabuse provisions are now included.
The FTT will most probably affect utilities, given that financial institutions and financial instruments are defined under MiFID I (2004/39/EC), currently under revision. EURELECTRIC is concerned that the taxation of commodity derivatives may also affect operations that have hedging rather than speculative purposes, thus triggering negative
effects within the electricity sector. Electricity companies often use financial instruments to mitigate risks stemming from their treasury and commercial activities. The quantitative definition of “financial institutions”, according to which any undertaking carrying out certain financial activities is considered as a financial institution if the average annual value of its financial transactions is more than 50% of its overall average net annual turnover, may lead such companies to be unduly classified as financial institutions. EURELECTRIC believes that such hedging transactions as well as intra-group transactions should be exempted from the FTT proposal.
The proposed directive will now be discussed by member states, with a view to its adoption under enhanced cooperation. The 11 concerned countries (AT, BE, DE, EE, ES, FR, GR, IT, PT, SI, SK) must agree unanimously before it can be implemented. The European Parliament will also be consulted. EURELECTRIC will carefully analyse the impact of this proposal for our sector in the coming weeks in order to identify the most appropriate course of action.