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The Financial Transactions Tax: what the EU is really working on

    John Chown is founder chairman of JF Chown & Company and a principal in Chown Dewhurst LLP, was educated at Gordonstoun and Selwyn College, Cambridge (First class honours economics, Adam Smith Prize and Wrenbury Scholarship) and is an Honorary Fellow, and member of the Investment Committee, of the College. He is the author of the CPS publications 'Time to bin the Tobin Tax' and 'The Tobin Tax rears its ugly head, again'.

    This link leads to a copy of the (unpublished) minutes of the Working Party Discussion of the “Non Paper” held on 22 May 2013. In all its 26 pages, there is no indication of any significant climb down on the Commission’s proposals for a FTT (despite the recent media comments highlighted by Tim Knox). There are a very few minor concessions but most of the discussion is how they can reinforce and support the concept. A lot of it constitutes “non answers” and unsupported assertions. Below are a few telling quotations.

    • It says that a “business case” for tax compliance also makes one for compliance outside the FTT zone. It discusses that there will be issues in respect of countries outside the envisaged FTT jurisdictions. Avoiding double taxation and double non-taxation would “require agreement”. (page 6.)

    On page 7 they say that they want to ensure that “financial institutions make a fair and substantial contribution to cover the cost of the recent crisis”, apparently not recognising that that this will simply add to the already substantial needed to recapitalise them, and “create a level playing field with other sectors from a tax point of view”. Probably, like Avinash Persaud, they have misunderstood the implications of being “exempt” from VAT.

    • It goes into great detail on government bonds saying it “could not come up with estimations on the regional breakdown of revenues” but that it is sending a questionnaire to Member States requesting information (page 8).
    • On dealing with the point of who collects what tax revenue from where (a point on which the Commission is being deliberately elusive and vague), it actually says “e.g. revenues from trading in Italian government bonds by whomsoever would accrue to Italy …” (page 9).
    • It seems to take the point (page 14 onwards) that they might have to adjust the rate on derivatives on very short term securities, but its solution, of adjusting the rate as the maturity shortens, would add greatly to the complexity. The measures, it says, could make long term bonds more attractive for investors “and the effect would be to flatten the yield curve” (surely a matter for monetary policy rather than a by-product of the tax measure] and actually go on to say “it is not clear why such a flattening should constitute an `imbalance’”.
    • It finishes that section by saying “opting for a lower tax rate for the trading in (government) bonds and bills would have negative implications for revenues and thus for consolidating public budgets, or for investing in growth-enhancing projects”
    • On non-government bonds, it comments that “there does not seem to be a shortage of liquidity in markets, or too tight a monetary policy that would hinder banks to provide credit to enterprises”.
    • The purpose of including pension funds “is to put them on an even footing with other asset managers” (page 21).
    • It says (page 23) that high frequency traders “need to wait for deals that earn a small profit, and on top of this the FTT due”

    So beware claims that the FTT is being significantly watered down. The evidence – as opposed to the leaks – suggest otherwise.

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