EU plans for 'Tobin Tax' hits hurdles

Controversial EU plans for a financial transactions tax (FTT) have hit a further set of hurdles as the 11 countries in favour of the charge are struggling to reach agreement over what it should cover.

US political risk research and consulting firm Eurasia Group has analysed current attempts to decide on the scope of the FTT, which was due to be implemented next year.

The report says this target now 'looks implausible given the September 2013 German elections and increasing disagreements among the 11 states. Forging an agreement on a diluted tax will likely delay the currently targeted implementation date of January 2014 by at least six months.'

The FTT is due to be introduced under the EU's enhanced co-operation mechanism, which allows a minimum of nine member states to work together to introduce new rules. The duty covers all financial institutions, all financial markets and all financial instruments, levying a rate of 0.1% on equity and bond trades, and 0.01% on derivatives.

Eurasia Group's research says the 11 participating countries have failed to agree on precisely which types of transactions will be covered by the levy. Italy opposes suggestions to include sovereign debt, as it relies heavily on government bonds and is already forced to pay high yields. France does not want the levy to apply to corporate bonds, and - supported by Spain - on transactions made by pension funds and within the same financial group, although Belgium opposes the latter two exemptions.

All 11 are opposed to the European Commission's plan to include the 'repo market'-short-term loans between institutions backed by specific assets, which help maintain market liquidity. In addition, the Netherlands wants protection for pension funds and Belgium, Slovenia and Slovakia are pushing for exemptions for repurchase agreements.

Negotiators are set to meet to discuss these and other issues later this week. At an earlier meeting in February, representatives from Germany called for a phased-in approach that would encompass equities and bonds, later expanding to derivatives.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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