Thursday

26th May 2022

Britain renews attack on EU transactions tax

  • The FTT would hit all euro-denominated trades (Photo: Travel Aficionado)

British chancellor George Osborne has attacked EU plans to create a financial transactions tax (FTT), describing it as "poorly designed, badly timed and unlawfully extraterritorial."

He said it would "hinder EU growth by disrupting the diverse markets used by corporates to raise financing for long-term investment … [and] undermine the single market by splitting tax treatment of derivatives into two regimes."

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He predicted it would also cause "conflict" within the G20, a forum of leading world economies.

Osborne's latest broadside against the levy came in a letter sent on Wednesday (5 June) to Guido Ravoet, the chief executive of the European Banking Federation, a Brussels-based lobby.

Under the EU proposal, trades in bonds and shares would carry a levy of 0.1 percent, while derivative trades would be taxes by 0.01 percent.

The EU executive estimates the tax could raise €35 billion a year for the 11 governments keen to go ahead.

But it has also warned this could come at the expense of a 0.3 percent fall in the bloc's overall GDP, a 15 percent decline in the trade of shares and bonds and a 75 percent reduction in the volume of derivative trading.

High-frequency trading, where thousands of trades are made each minute using computer algorithms, is set to suffer the most.

London, the home Europe's largest financial centre, is keen for the proposal to fail.

It began legal proceedings against it in May at the European Court in Luxembourg.

The City of London is particularly anxious to shoot down the "extraterritorial" clause.

As the EU proposal stands, the FTT would hit all financial institutions in non-FTT countries when making euro-denominated trades with counter-parties inside the EU-11.

Reports indicate some of the 11 countries are ask having second thoughts about the scheme.

Germany does not want to take any decision on the FTT proposal before national elections in the autumn, while Austria and Belgium want to exempt pension funds from the tax.

But the EU commission says this is a normal part of to-and-fro in preliminary talks.

For his part, French central bank governor, Christian Noyer, last week called on EU lawmakers to re-write the proposal to "prevent the risk of destroying entire segments of our financial industry or the offshoring of jobs, as well as the highly counterproductive effects on government borrowing and the financing of the economy."

The Luxembourg-based European Investment Bank (EIB) has also called for an exemption from the scope of the FTT.

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