The European Commission unveiled plans for a financial transaction tax (FTT) backed by 11 EU countries that would place a 0.1% levy on bonds and shares and 0.01% on derivatives. However, the tax faces criticism over potential double taxation issues, as traders could be taxed by both their domestic tax rules and the new FTT. Specifically, a UK trader buying or selling with a German institution would face both the UK's stamp duty and the new FTT. Critics argue this amounts to unacceptable double or multiple taxation on some products and transactions. The Commission believes the new tax will generate €30-35 billion annually for the 11 countries, but details on revenue disbursement are still unclear.

1. BY BENJAMIN FOX
Double taxation row as Brussels unveils transactions
levy
14.02.13 @ 19:20
BRUSSELS - The European Commission was under fire Thursday (14 February) over claims
that its planned tax on financial transactions (FTT) would lead to double taxation.
Unveiling the plans for an FTT backed by 11 EU countries, Taxation Commissioner
Algirdas Semeta said that it was a "fair, technically sound and legally robust tax."
The proposal puts a 0.1 percent levy on bonds and shares and 0.01 percent on derivative
products. Measures have also been put in place to prevent traders from circumventing the
system by operating from outside the EU-11.
The use of an "issuance" principle as well as "residence" criteria means that traders
operating outside the FTT-11 would also be liable to pay the tax.
"As long as you want to buy and sell European products you must pay the tax," said an
EU official. This raises the thorny issue of double taxation.
The new rules will mean that if a UK trader buys or sells with a German institution, they
will be hit with both the UK's domestic stamp duty and as well as the FTT.
Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified
Accountants, accused the Commission of "deliberately seeking to taint transactions and
products so that non-FTT states may be impacted by the tax."
"How it can be acceptable that some products and transactions will be subject to double or
multiple taxation," he asked.
Under the new regime, traders and institutions to be exempted would also be required to
prove that there was no financial link to a product in the FTT-zone. All reimbursements
would be on an ex-post basis. Traders would also be expected to pay the levy at the point
of transaction.
The levy will not apply to the European Central Bank, the ESM bail-out fund, or any other
EU institutions, while day-to-day bank transactions and financial instruments relating to
public debt or re-financing are also unaffected.
Meanwhile, countries outside the FTT-zone will still be required to collect the tax revenues
- arising because traders on their territory did business with an FTT country - through EU
legislation on administrative cooperation on tax matters.
Pressure for a tax on financial transactions based on the idea of Nobel prize winning
economist, James Tobin, grew following the financial crisis amid public anger at multi-
billion euro bailouts of financial institutions.
The commission says the FTT will reap between €30 to €35 billion per year for the 11
countries. What will happen with the revenue is less clear.
At last week's budget summit EU leaders agreed to consider whether to include the FTT

2. as an "own resource" to the EU budget. But nothing has yet been agreed.
An EU official indicated that the disbursement of the cash would be decided by member
states.
The commission expressed confidence that the tax will not lead to traders moving away
from European financial markets, with a paper accompanying the draft directive insisting
that the EU-11 market was "too big to be ignored".
The EU executive also estimates that the legislation could lead to a 15 per cent decline in
the trade of shares and bonds and a 75 per cent reduction in the volume of derivative
trading - widely regarded as the most susceptible to risky trading.
The legislation had already provoked criticism from the US Chamber of Commerce, who
warned in an open letter released on Thursday to the Commission that the proposal
amounted to "the unilateral imposition of a global financial transaction tax".
Commissioner Semeta played down any talk of a transatlantic rift, noting that he would be
"more than happy to discuss" any concerns.
Meanwhile, Britain, with the most important financial centre in the EU, congratulated itself
on being outside the FTT zone. A government spokesperson said the tax will "hit growth
for the countries taking part."
An original proposal in 2011 for the FTT to include all 27 member states failed to gather
enough support forcing willing countries to push ahead alone.

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