EU Financial Transaction Tax—Back from the Dead or Going Through the Motions?

Mariano Giralt and Sabine Burneleit BNY Mellon, London and Frankfurt


Mariano Giralt is Managing Director and Sabine Burneleit is Senior Tax Manager at BNY Mellon

The EU Financial Transaction Tax project had been thought by many commentators to be a dead letter, but after a recent meeting of participating nations the member states involved have issued a joint statement renewing commitment for the introduction of the tax in January 2016. Given the outstanding issues with implementation, the deadline may be unrealistic.

For those who believed the EU Financial Transaction Tax (“FTT”) project was dead in the water, it came as a surprise that after the Economic and Financial Affairs Council (“ECOFIN”) meeting in January 2015 a joint statement was released by ministers of the participating member states (“PMS”) in the FTT enhanced cooperation procedure.

They again renewed their previous commitment (of May 2014) to reach agreement on the proposal for a Directive for implementing enhanced cooperation in the area of FTT. Many had assumed the project had failed due to the long period of political deadlock, with rumors of member states digging in at the end of 2014 to defend particular national interests. However, with a letter from France and Austria encouraging other PMS to endorse the FTT proposal one week prior to the ECOFIN meeting, it appears new political life has been breathed into the FTT talks. With this commitment the tax is at least back from the dead and possibly even back on track for implementation.

I. Background

Following the 2008 financial crisis, the European Commission were determined that a financial transaction tax would lead the financial sector to “contribute more fairly to the costs of the crisis” and help address the fiscal imbalance in Europe. In February 2013, the Commission issued a proposal for a Council Directive that would in effect create an FTT, for the 11 member states1 that agreed to participate in the enhanced cooperation procedure.

Broadly, the proposed FTT introduces a tax on transactions involving a wide variety of financial instruments (including equities, bonds, non-spot FX and derivatives) where a financial institution party to the transaction is resident in an FTT PMS (residency principle), or a financial institution is party to a transaction in an instrument issued by an entity in an FTT PMS (issuance principle). As currently defined, a financial institution encompasses not only banks and brokers, but also investment funds, pension funds, asset managers, and regulated markets as well as the treasury departments of large corporations. A minimum tax rate of 0.1% is proposed for equities and bonds and 0.01% on derivatives.

Local FTTs already enacted in participating member states (such as French and Italian FTTs) will continue to apply until the Directive comes into force, at which time participating member states will be required to cease imposing or introducing similar tax regimes.

The original proposal received strong opposition from many EU Member States and this is still the case at present. Although the Court of Justice of the European Union ruled the U.K.'s challenge to the FTT as premature in April 2014, this should not be seen as a legal endorsement for the FTT. Simply put, the U.K. was told it could not challenge the impact of a tax which had not yet been agreed upon. It would be well within its rights to challenge any agreed proposal in the future. Interestingly, a number of the other non-participating member states, notably Sweden, Luxembourg and the Netherlands, openly supported the U.K.’s complaints. Sweden has its own experience of a failed domestic financial transaction tax and commented that it would consider joining the U.K. in a subsequent legal challenge depending how the proposal develops.

II. Implications of Joint Statement

Two important points from the joint statement (on January 27, 2015) should be considered:

(1) The tax should be based on the principle of the widest possible taxable base of instruments; and

(2) Much lower rates of taxation than previously proposed.


The new statement overrides the May statement which had confined the scope to shares and “some” derivatives as a first step only. Consideration is to be given to the impact of such tax on the real economy and the potential risk of relocation of the financial sector.

The PMS have established a permanent working group which will report on progress at future ECOFIN Council meetings. Ostensibly, their plan is to stick to an implementation date of January 1, 2016 although it is increasingly difficult to see how legislative and system-related deadlines could possibly be met before that date. Additionally, they have asked the European Commission to provide assistance and involvement regarding technical aspects around the collection and enforcement mechanism. However, the statement provides no insights concerning revenue distribution.

With regard to the former May statement of intent, it is worth noting that Slovenia signed the most recent document (whereas in May it had not, leading to speculation that it had dropped out of the enhanced cooperation). On the other hand, Greece, which had previously signed, did not this time due to the recent elections.

III. Current Uncertainties

A lot of work remains for the PMS and its working group. Whilst Austria will chair the group in political discussions on the details, Portugal will lead the technical workflow.

The PMS have to clarify what the basic principles of the tax should be--and there is no clear sign yet of any fundamental agreement here. The latest statement of the PMS did not provide any details regarding the applicability of the so-called issuance principle, the residency principle, counterparty principle or any combination of those.

Additionally, the PMS have to deal with the question whether all participants in a chain of financial intermediaries have to pay the tax--which would create a cascade effect for a transaction which is economically just a single trade.

The joint statement of the PMS did not precisely define the term “widest possible base”. One could argue that this latest statement is no different than the previous letters of intent--a declaration of political will, rather than a clear commitment to apply FTT on, for example, equities, bonds, fund units and derivatives.

The PMS also need to define what they mean by “low rates” as the original proposal of February 2013 by the European Commission had already proposed 0.01% on derivatives and 0.1% on shares and bonds.

Timing is another area of uncertainty. The joint statement reiterates the focus to implement the FTT on January 1, 2016, but as mentioned above the proposed timeframe seems ambitious.

Recently published comments suggest strong divergences of view within the group. Some of the PMS envisage a phased approach in regards to the introduction of the FTT over 2016 and 2017. Others demand the exclusion of government bonds or small and non-listed companies from the scope of the FTT. Smaller nations have stressed that the tax revenues need at least to cover their expected expenses of implementation. Some of the PMS openly admit that technical and organizational requirements would need three years to be adequately adapted and that the proposed implementation date (January 1, 2016) seems unrealistic.

Finally, it is noteworthy that many economic analysts and finance experts have criticized the principle of an FTT. They warned that this measure could curtail investment at a crucial time when the EU is instead seeking to boost economic growth, and appears to be incompatible with the European Commission's Capital Markets Union project.

At the moment the main drivers of the enhanced cooperation procedure--Austria, Germany, France, Spain, Italy and Portugal--are preparing papers on detailed aspects of the collection mechanism, for instance what flagging of counterparties might be necessary in trading systems to identify the declaration obligation. In addition, the European Commission is expected to explain the implications of the issuance and residency principles for any collection method and its enforcement. The group is also working on the question of how much of the tax's administration and collection should be delegated to national legislation and the potential for leveraging market infrastructure.

Whilst the PMS have reaffirmed their political ambition and commitment to implement an FTT, many fundamental questions remain: Will they opt for the issuance or the residency principle? How will they define the primary tax liability? What exemptions will be allowed? What rates will be levied? And what will be the appropriate collection mechanism?

As we are fast approaching the effective date of January 1, 2016, it is critical that the financial services sector is ready to implement the FTT. However, with all these questions and uncertainties still on the table, it is very difficult for the financial services industry to implement any changes in processes and systems.

As this January 2015 statement is not the first political document, does it really indicate that sufficient momentum exists for the agreement and introduction of a FTT? The key to success will ultimately be to overcome the divergence of views which currently characterize all negotiations among the PMS.

IV. Going Forward

In February 2015, the Austrian and French Finance Ministers voiced their support for the FTT in a joint press conference which followed a bilateral meeting. The two ministers stated their aim to provide the basic information required to make a decision on the FTT at the next informal meeting of the ministers of finance in Riga at the end of April 2015.

Only time will tell whether the politicians are merely going through the motions or whether the FTT is truly back from the dead.

Mariano Giralt is Managing Director and Head of EMEA Tax Services at BNY Mellon, London and may be contacted by email at

Sabine Burneleit is Senior Tax Manager at BNY Mellon, Frankfurt and may be contacted by email at
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute tax advice, or any other business or legal advice, and it should not be relied upon as such.


1 Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.