09 March 2012

EBF: Report on the proposed FTT Directive

The EBF is unconvinced by the arguments put forward by the Commission to support  the presentation of the proposed Directive. Furthermore, we refute entirely the assertion that the financial sector is under-taxed. The EBF  further finds  that  the impact assessment underpinning the proposed Directive, though flawed and not sufficiently comprehensive, does not support the case for  an FTT. The EBF is disappointed that the Commission’s economic analysis has been performed using an oversimplified model and that there has been a failure to publish any country-by-country analysis. Also, it is concerning that the Commission has not adequately understood the  structural disruption of financial markets and wider negative economic impacts to the Member States and their citizens that an FTT would cause.

In its impact  assessment, the Commission explicitly  assumes that 90 per cent of derivatives could disappear as a result of the implementation of the FTT in the EU. The EBF is stunned to see that such a disruption of the market is considered by the Commission as an acceptable consequence of the FTT, as if it were merely trivial collateral damage or even a welcome structural break.

1. The proposed FTT is first intended to ensure that the financial sector makes a fair contribution to public finances. The underlying assumption is that the financial sector is undertaxed compared with other sectors. In this context, it is assumed that additional taxation of the financial sector and/or of financial activities would be fair and would shelter citizens from having to bear the costs of additional taxes. However, the proposed Directive fails to take into account that the financial sector bears significant costs of hidden VAT and already contributes greatly  to the Member States’ budget notably via bank levies already introduced in several Member States as well as corporate taxes paid by the sector.
2. The proposed FTT Directive is meant to limit undesirable market behaviour and to help stabilise markets, but it will in fact create market disruptions and significantly affect liquidity.
3. The FTT is aimed at raising revenues, but  as currently designed will  result in massive delocalisation and disappearance of certain activities: thus little revenue is to be expected from such an FTT. With the impact assessment far from being conclusive and the accuracy of the figures presented being uncertain, final conclusions cannot be drawn based only on assumptions.
4. The proposed Directive aims to ensure a proper functioning of the Internal Market, to help eliminate double taxation and reduce competitive distortions. There are however serious concerns  over delocalisation of financial transactions towards other international financial centres (especially the US and Asia). Europe’s economic independence is at stake. Introducing an FTT in the EU would also put most of the tax burden on certain Member States, such as the UK.
5. Recommendations: As currently designed, the FTT Directive would meet virtually none of the objectives set forth  by the European Commission. Worse still, it would have significant negative impacts on the financial sector’s profitability, affecting in turn the European economy in general. Therefore,  the EBF  urges Member  States  to  drop the  EU-wide  FTT project and  to consider more appropriate ways to address issues such as reducing systemic risk and limiting speculation.

© EBF