FTT nears agreement?

Reports indicate that the compromise FTT proposed by a group of 10 EU member states may be close to agreement. The remaining issue delaying its adoption appears to be differences over how the revenues from the tax will be shared by those member states enacting the tax. If this final hurdle can be overcome, it is understood that France and Germany will push for its introduction from 2021.

The ten member states participating in the enhanced co-operation procedure (ECP) are Germany, France, Italy, Spain, Portugal, Greece, Slovenia, Slovakia, Belgium and Austria.

Background

In December 2015, an agreement in principle was reached on some of the main outstanding issues on proposals for an FTT to be taken forward under the ECP. This, it appears, was yet another false dawn in relation to the FTT proposal and little or no further progress was made.

Conflicts over the treatment of pension funds under the proposed tax appear to have undermined any progress as have, more recently, concerns over the impact of an FTT on attracting any banking and other finance industry business moving from London in the wake of Brexit.

However, reports from late 2018 indicated that a proposal had emerged to seek to take forward the FTT on a very restricted basis only. This proposal was said to be based on introducing an FTT which would be similar in scope to the one introduced unilaterally by France and involve a tax at a minimum rate of 0.2% on the shares of companies with a €1bn market capitalisation.

In particular, it was suggested that the restricted form of FTT would apply to:

• transfers of securities in larger publicly traded companies only
• the imposition of the tax may be linked to the transfer of ownership in the local trading venue
• derivatives and non-equity securities would be excluded from the scope of this new FTT proposal, and
• there may be a range of other exemptions, such as for intra-day transactions.

Following an ECOFIN meeting held on 12 March 2019, the German Finance Minister was reported as saying that certain issues have still to be clarified, such as how the proceeds from the FTT will be distributed.

Further progress?

In June 2019, it was reported that the 10 member states taking part in the ECP had now agreed to the broad terms of the FTT and France and Germany were expected to propose an implementation date of 2021.

New reports now suggest that those member states supporting the current proposals are expected to push for a formal agreement in October when they plan to meet in Luxembourg. In particular, the new Italian Finance Minister, Roberto Gualtieri, is reported as confirming the aim following a meeting with German Finance Minister, Olaf Scholz, in Helsinki.

The remaining issue causing difficulties appears to be the method by which revenues from the FTT will be split amongst participating member states.

It is understood that the June 2019 meeting saw a plan put forward to share revenues according to the Gross National Income (GNI) of economies so that participating countries with small stock markets and few large companies would not face excessive administrative burdens. However, Spain, in particular, was unhappy with the impact of this method of calculating revenue sharing.

Comment

Technical difficulties and differences over the scope of the original FTT proposal and, more recently, the opportunities offered by Brexit to attract foreign banks appear to have derailed the original, much wider FTT proposal.

The emergence of the more restricted and more realistic proposal for an FTT based on the French model (at least as a starting point) appears to have breathed new life into the proposal. However, differences over the revenue sharing aspects of the proposal should not be underestimated and it remains to be seen whether all the Member States involved can be reconciled to one methodology.