European Commission - FTT to be ‘Implemented at Global Level Only’
With the release of an official communication on the Taxation of the Financial Sector on the 7th October, the Commission has endorsed the idea of introducing a Financial Transaction Tax (FTT). However its realisation is still likely to be a long time coming as the document states that it should only be implemented on a global level. Faced by persistent opposition inside and outside Europe, a global agreement on the introduction of the FTT seems doubtful in the near future. On a European level the Commission is proposing preference should be given to the introduction of a so-called Financial Activities Tax (FAT).
The FAT relates to the total sum of profits and remunerations of financial institutions. Accordingly, it would tax corporations, rather than the individual actors involved in a financial transaction. According to the Commission, the FAT could bring cash-strapped governments up to €25 billion in revenue from the banking sector in the wake of the global financial crisis. A tax on financial transactions, by contrast, would hit all kinds of capital movement, including equity, bonds and derivatives. According to Commission estimates, the FTT could generate revenues of up to €60 billion annually if applied worldwide with a 0.1% rate. If the tax were also applied to derivatives, revenue would amount to around €600 billion per year.
The banking sector is considered a major cause of the global financial crisis. The Commission paper points out that this sector received “substantial government support over the past few years”. It is also currently exempted from the value added tax (VAT). The introduction of a FTT would ensure that the banking sector “properly contribute[s] to the cost of re-building Europe's economies”, and that “this sector is not under-taxed compared to others”. Whilst Austria, Belgium, France, Germany and Greece have expressed their support for the FTT, the UK, Sweden, the Netherlands and the Czech Republic do not. On the global stage, opposition is also high as the US, Canada, Australia, India and others, refusing to support a proposal on the FTT.
Shortly after the release of the Commission’s official communication, Peter Wahl from the German civil society organisation World Ecology, Economy and Development (WEED) expressed his disappointment with the Commission’s decision. “Through linking the implementation of the FTT to a global agreement, the tax will remain a utopian project for the foreseeable future”.
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