Tag Archives: Financial Transactions Tax

Proposal for a European Financial Transactions Tax

Here it is at last: the debated proposal for a Directive on a common system of financial transaction tax. This type of tax was initially proposed by the economist James Tobin.

The idea is to tax a great number of financial instruments – including instruments which are negotiable on the capital market, money-market instruments (with the exception of instruments of payment), units or shares in collective investment undertakings (which include UCITS and alternative investment funds) and derivatives agreements. The tax rates will be set by Member States, but must not be less than 0.1% of the taxable amount in most cases.

According to the Commission the new tax will have progressive distributional effects, i.e. its impact will increase proportionately with income, as higher income groups benefit more from the services provided by the financial sector.



Financial Transactions Tax: the Commission Proposal

The Commission has proposed a two pronged approach for the future taxation of the financial sector. At global level, the Commission supports the idea of a Financial Transactions Tax (FTT). At EU level, the Commission recommends that a Financial Activities Tax (FAT).

Globally, estimated tax revenues from FTT would have been around EUR 60 billion for 2006 for stocks and bonds transactions assuming a tax rate of 0.1 %. According to the Commission the FTT would have to be levied on the broadest possible base to reach its efficiency goal.

In contrast to an FTT, whereby each financial market participant is taxed according to his transactions, the FAT taxes financial corporations and it falls on total profit and wages. For the EU-27, the addition-method FAT could raise up to EUR 25 billion.