The European Commission unveiled its revised proposal for a new financial transaction tax (FTT) on 14 February 2013 following the decision by ECOFIN in January to proceed with the introduction of an FTT through "enhanced cooperation". Expected by the Commission to generate 30 - 35 billion a year from 1 January 2014, the FTT as proposed will apply far beyond the borders of the 11 Member States requesting the proposal. Opposition to the FTT is strong and likely to increase as the potential implications of the revised FTT are considered. Significant hurdles also need to be overcome before the FTT can be implemented, including the potential for legal challenge to its design and scope.
In this briefing we summarise the nature, scope and potential impact of the FTT as proposed and its potential implications for Irish issuers and the Irish funds and financial services industries generally.
What is the FTT?
Proposed initially by the European Commission in September 2011, the FTT is tax on financial transactions within the FTT zone. While originally intended to comprise all 27 EU Member States, the FTT-zone will now comprise only those 11 Member States who have requested to proceed through the "enhanced cooperation" procedure: Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain, which together account for two-thirds of EU GDP.
Initially proposed as a tax on financial transactions involving one or more financial institutions established in the FTT-zone (the "residence" or "establishment principle"), the revised proposal also applies to transactions involving securities issued within a participating Member State (the "issuance principle"). This extension was included to avoid financial institutions relocating outside the FTT-zone to avoid the tax. Thus, transactions involving German or French securities, for example, are now potentially in scope irrespective of where the parties to the transaction are located. A deemed "establishment principle" also applies so that non-FTT zone financial institutions are to be subject to the tax in respect of financial transactions with FTT-zone parties whether or not they are financial institutions.
The FTT is to be charged on financial transactions involving one or more financial institutions where (1) at least one party to the transaction is established in the FTT-zone, or (2) the transaction is in respect of financial instruments issued by an issuer established in the FTT-zone. Certain intra-group transfers are also within scope. Financial transactions are defined broadly to include: the purchase, sale and exchange of financial instruments; certain other intra-group transfers involving the transfer of the risk...