A new european tax on financial transactions is set to go global
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A New European Tax on Financial Transactions Is Set To Go
AREAS OF WORK
Global
Security Council ( Global Taxes )
Globalization Attempts at better regulation of the financial sector in the US and EU involve laws applying beyond
state boundaries to prevent risky financial activity that has historically contributed to the financial
Social and Economic Policy crisis. This year, eleven EU countries agreed to a Financial Transaction Tax (FTT) on investments,
Social and Economic Policy potentially bringing an additional $45 billion in revenue, which some say could go towards offsetting
at the UN debt or even social and environmental programs. Furthermore, through extraterritorial enforcement,
FTTs tax financial investments from trading partners like the US and dissuades tax evasion by
The Bretton Woods European companies. The US Foreign Account Tax Compliance Act similarly limits the use of tax
Institutions and Other havens by requiring foreign banks to report all US holdings. While some countries are already looking
Governance Fora Picture Credit: english.alarabiya.net at adopting this regulation, the FTT faces opposition from the UK and US. Although stronger financial
The World Economic Crisis regulation is needed, the global nature of the issue highlights the complexity of implementing
reforms.
Poverty and Development
The Millennium
Development Goals
World Food & Hunger By Howard Schneider
Washington Post
Financing for
February 26, 2013
Development
International Trade and
Development A new European tax on financial transactions will hit investors worldwide — including in the United States — who buy stocks and bonds of
European companies, do business with European banks or engage in any of a broad array of financial activities.
Global Taxes
General Analysis on The levy is due to take effect next year and will be a significant money-raiser for the 11 nations that have signed on, bringing in an
Global Taxes estimated $45 billion annually. The 11-nation group, whose members are mostly from the economically ailing euro currency union, includes
major U.S. trading partners such as Germany and France. Britain is not participating.
Currency Transaction
Taxes Supporters say the tax is a matter of fairness — a way to make the financial sector pay its share to offset the bailouts received during the
Energy Taxes financial crisis and to curb speculation. But it is also emblematic of a broadening debate about how far countries can reach across borders
in their drive to regulate the financial industry.
Aviation Taxes
Banks worldwide are drawing up plans to adapt to the U.S. Foreign Account Tax Compliance Act, which requires foreign financial institutions
Alternative Financing for
to report the holdings of Americans to the Internal Revenue Service and to withhold tax on some transactions. And many nations have
the UN
complained that a new U.S. law limiting speculative trading will force their local banks to dramatically change how they do business if they
Global Inequality have even a small presence in the United States.
The Environment U.S. officials are pushing Europe to curb the application of the transactions tax outside the nations directly involved, and business officials
Global Public Goods argue that the trend toward “extraterritorial” regulation could have damaging consequences.
Labor Rights and Labor “There is a potential for regulatory overreach that could harm the global economy,” said Tom Quaadman, vice president for capital markets
Movements at the U.S. Chamber of Commerce. “These taxes create different types of behavior. . . . It is like water trying to find its level. The activity will
Tables and Charts on go other places.”
Social and Economic Policy
There was no estimate, he said, of how much Europe might collect from U.S. companies or investors under the new tax.
Links and Resources
He noted that the United States repealed a similar levy in the early 1960s to encourage companies to raise capital for investment, and
Nations & States Sweden in the 1980s abandoned a tax on stock trades after trading activity migrated elsewhere. More recently, the Obama administration
opposed the idea of a financial transactions tax in favor of a direct levy on banks based on the size of their balance sheets. That has not
NGOs
been enacted.
UN Finance The decision by U.S. and British officials to split from major European powers over the financial transactions tax marks one of the more
important divergences in the discussion of how to bolster financial regulation in the wake of the crisis that followed the 2008 failure of
International Justice Lehman Brothers.
UN Reform Many consumer-oriented groups argue that the money raised through a transaction-based tax could be used to offset the risks posed by
the financial system or funneled into other social issues such as climate change. The International Monetary Fund has endorsed the concept
SPECIAL TOPICS of a financial transactions tax — sometimes called a Tobin tax for the economist who initially advocated it, or a Robin Hood tax for its
potential redistributional effects — and European officials say they hope some version of it is adopted throughout the world.
World Food & Hunger
“The first and best solution is an FTT globally,” European tax commissioner Algirdas Semeta said this week in Washington, where he met
The Dark Side of Natural with Treasury Department and business officials.
Resources
But Semeta said the 11 European nations are prepared to “lead by example” and think they have created a law that avoids some of the worst
Global Taxes potential pitfalls.
Humanitarian Intervention? European Commission studies concluded that the tax — of $1,000 on a $1 million stock trade, or $100 on a $1 million contract in
derivatives, repurchase agreements and a host of other financial products — will have a modest impact on economic growth. But consumer
Private Military and Security financial products, such as insurance policies, have been excluded to mute that impact, as have the initial sales of stock and bonds used by
Companies companies to raise money for projects and expansion.
Tables and Charts European officials say one reason they drafted a law with global reach was to avoid creating incentives for companies to shift their business
elsewhere — and to try to ensure that wherever covered transactions take place, the fee will be collected. That may, for example, force
WORKING GROUPS markets such as the New York Stock Exchange to vet their listings for North American subsidiaries of European companies and collect the
tax when shares in those firms are bought or sold. Other collection efforts will rely on existing tax treaties and arrangements among
NGO Working Group on the
