Financial Transaction Tax

Author:Mr Ronnie Brown
Profession:Biggart Baillie

On 28th September the European Commission published its draft directive implementing a common financial transaction tax ('FTT') for EU member states.

The FTT would apply to

to all financial transactions in financial instruments to which a financial institution is a party if one or more parties are established in the EU Financial transactions will include all sales and purchases of financial instruments, including repurchase agreements and stock lending arrangements, and intra group transactions, but will not include the issue of new shares

Financial Instruments includes stock, shares and units in collective investment schemes and many derivative products such as swaps, futures and options

Financial institutions include investments firms, credit institutions, banks, pension funds, pension fund managers, collective investment entities and insurance companies.

A financial institution is established in an EU state if it is registered there or its activities are authorised by the regulators in that state or it has a permanent address or branch in that state. However, the FTT will apply even if the financial institution is not established in the EU if it is a party to a financial transaction with another party who is so established. Thus a US investment bank transacting with a UK business which is not a financial institution can be subject to the tax.

The tax is set at a minimum of 0.01% for transactions in derivatives and 0.1% for all other transactions in financial instruments, although governments in each state can set a higher rate. The rate is chargeable on the consideration paid, or market value...

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