24 September 2012

Nessa Childers: The banks cost us billions but we still hesitate to tax!

Echoing other hesitant governments around Europe, the Irish government claims that the FTT would put Irish jobs in the sector at risk of relocation if the UK does not sign up, writes Childers in her article for Social Europe.

The UK... is deeply opposed to the Financial Transaction Tax, which is not surprising given that financial services in the City of London provide more than 50 per cent of the political donations for the ruling Conservative Party. What is surprising to me is that my own Irish government, in which my own Labour Party is in coalition with the conservative Fine Gael party, is also opposed to the FTT.

How exactly a 0.1 per cent tax on transactions of shares/bonds and 0.01 per cent for derivatives could possibly affect real investment decisions has never been made clear. So far though the lobbying has been very successful and with most of the media unable to process anything other than soundbites, there has been little public debate in Ireland on the FTT.

The FTT is structured, most importantly via the “residence principal”, to remove the possibility of relocation and avoidance. As long as a financial institution anywhere in the world intends to either undertake transactions in the FTT-zone or to serve a European client base it would be deemed to be established in the territory of the Member State associated with the transaction (Article 3.1 of the proposal). Therefore a financial institution, even if in New York or Singapore, would have to abandon all its European clients if it wanted to avoid paying the tax. Given that the EU market is the largest in the world this is very unlikely, and as relocation makes no difference, it is also very unlikely.

In its report, the European Parliament added an “issuance principle”, whereby financial institutions located outside the EU would also be obliged to pay the FTT if they traded securities which were originally issued within the EU. For example, if Siemens shares originally issued in Germany were traded between a Hong Kong firm and one in the US, both would have to pay the tax to the German tax authorities. Under the Commission’s proposals, such transactions would have escaped the tax. The Commission has indicated they will include this extra provision in the new proposal due soon under enhanced cooperation for the at least nine Member States willing to sign up.

The end effect for Ireland is that the state will lose up to €500 million in badly needed revenue. Irish firms engaged in financial transactions on the European market will still have to pay the tax but just not to the Irish tax authorities.

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