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16 January 2014

Reuters: Derivatives may escape transaction tax in eurozone

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Some financial derivatives may be ditched from plans to tax financial transactions in 11 eurozone countries to avoid harming sovereign debt markets. The countries met to discuss a revised proposal to tax stock, bond and derivatives transactions and make banks repay taxpayer money.

"It should be considered whether some categories of derivatives should not be included of if their taxation should be postponed, given for example their nexus with the government bonds' market and related impact on it", the documents seen by Reuters and prepared for the two-day meeting say.

Several countries are concerned that the tax could disrupt their debt markets just as the eurozone is starting to turn the corner on its debt crisis that saw several members being bailed out by the wider European Union.

The documents says it's unclear when a derivatives contract should be taxed, such as when it has been written, traded or comes to the end of its life. Removing some derivatives contracts from the transaction tax would be a boost for France, whose banks are key players in the market. The document also considers exempting corporate bonds to avoid "negative effects on the financing capability of companies, considering also the difficulties in receiving funding from the banking sector in the present environment".

In the original proposal, government debt trading on secondary markets would also be taxed but the document says this could raise the cost of financing national debts and should be considered for exemption. Securitised debt - which some central bankers want to see an increase in to aid economic recovery and wean banks off central bank funding - may also need exempting from the tax, the document said.

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© Reuters

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