EC warns of ‘double taxation’ risk

The Financial Transaction tax to which 11 EU countries are committed could result in double taxation in Ireland where a stamp duty is imposed on some transactions, the European Commission has said.

Ireland, despite the prospect of getting more than €500m a year from a FTT, has taken the advice of the industry and opted out of the tax, saying it could frighten off some of the financial services industry they say employs some 30,000 people.

Tax Commissioner Algirdis Semeta unveiled the details of the proposed tax which will now be discussed by the 27 member states, but just needs the unanimous agreement of those adopting it when it is finally agreed. In total it should raise up to €35bn a year, ranging from €9bn for Germany and €7bn for France to €85m for Estonia.

He said member states could opt in at any stage, and could adapt their own taxation to ensure there was no double tax on transactions. Currently Ireland levies a 1% charge on share purchases in an Irish registered company, but not on the sale and there is no tax on derivatives.

The new tax of 0.1% on shares and bonds and 0.01% on derivatives, to be adopted under the enhanced cooperation procedure in the EU where a group of at least nine countries can proceed with a unified policy, has come under heavy criticism from the industry.

A number of US business organisations, including financial services, are particularly exercised because the tax will apply to all trades that have any link with the 11 countries adopting it.

The tax will be due on both purchase and sale if any party to the transaction is established in a participating member state and/or has issued the financial instrument, regardless of where the transaction takes place. The tax will go to the participating 11, including the share collected from a party to a trade in a non-participating country eg, Ireland.

It will not apply to the banking and insurance activities of citizens and businesses or to traditional investment banking activities such as raising capital. Refinancing activities, monetary policy and public debt management will also be excluded, including transactions with central banks, the ECB, the EU rescue funds, the EFSF and the ESM, and transactions with the EU.