Ministers discuss FTT
On December 6, EU finance ministers held a discussion on the state of play of the proposal on enhanced cooperation in the area of financial transaction tax.
The Chair, representing the Slovak Presidency, opened the discussion, recalling that the dossier was last discussed by ministers in June. The 10 Member States participating in the enhanced cooperation have now presented updates. The negotiations on the file are ongoing, and we can again see some progress on a number of the key building blocks of the FTT: the so-called core engines.
Hans Jörg Schelling, the Austrian minister and the Co-ordinating Chair of the group of 10, was pleased with the considerable progress, but noted that there are still open questions. The progress has been based on the notion of a broad tax base and low tax rates, he explained. This should mean a few exemptions and a simple tax.
Shares, derivatives and market makers are the key issues agreed upon. Regarding shares, he informed that after a transitional period all shared provided for in the proposal will be taxed. During the transitional period, only those shares issued within the participating Member States are taxed. Regarding the scope of derivatives, he said that the broad tax base with a low tax rate principle is being followed as well: except for repos, all derivatives will be taxed after the transition period. The additional exemption is a rather small one for derivatives with underlying public debt. Regarding the tax base, there will be some amendments to the Commission proposal to avoid competitive distortions. The tax base for options should be the premium, and for all other products with a maturity, the time-adjusted notional amount will be defined as the tax base. Products with a short maturity must have no disadvantage compared to those with a long maturity. There is also an option for lower tax rates for market makers, which is a very small tax relief to ensure the liquidity of shares on the market. A reduced tax rate of 80% of the normal tax rate can only be granted to market makers. There will however be no exemption for market making for derivatives.
Of course there are still hurdles to clear, but definitive agreement must be possible in the next year, he stressed. One of the issues is the impact of the text on the real economy and on pension funds, and the Council has asked the Commission and the task force of the working group to present the findings of a study on that. Another question is the cost of implementation in relation to the expected revenues. However, the chair was optimistic that these hurdles can be overcome.
Commissioner Pierre Moscovici thanked the Presidency for its constructive approach and Member States for the tangible progress. He expressed his optimism that the Directive will see the light of the day, but expressed his regret that no specific technical results have been achieved, and the lot of technical work by the Commission has not fully acted on. He encouraged the Member States to establish a timetable for compromise agreements on the elements of the core engine, and then the 15 or so elements of the tax. The Commission urges Member States to reach an agreement on the text in the first half of 2017. The Commission will make sure that the law will be compatible with EU and national law.
The representative of Italy noted that the dossier is very complicated and technical, and that a lot of work has been done. However, several points remain to be cleared. An agreement has been achieved on the core engine, which represents the basis that will allow the definition of the tax design. He hoped that it will be possible to find common ground in the next few months.
The German finance minister said that despite the impressive work, it is still not a complete success story. He pledged to remain supportive and do whatever he can in order to reach a result next year, and warned against failing on expectations. He then stressed that the FTT proves that enhanced cooperation for such an issue is not the perfect instrument. However, if we get even a modest result, it might encourage others to join. The best solution would of course be a global one, as it is a problem that those implementing FTT with their neighbours not doing so will be in a difficult situation.
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