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By Hamza Ali
Asset managers that are negatively affected by the European Union’s moves to tax financial transactions are likely to relocate to the U.K. after Brexit, analysts say. Under the financial transactions tax (FTT) proposed by 10 EU countries, including Germany, France and Italy, a 0.1 percent levy would apply to any sale or purchase of debt or equity securities. The proposed tax rules would also see derivatives taxed at a 0.01 percent rate.In a new report, Bloomberg Intelligence’s Andrew Silverman and Sarah Jane Mahmud said the proposed tax—which has failed to get the support of member countries within the bloc—is now being attempted on a smaller scale and will likely be circumvented. “Brexit and the failure of an E.U.-wide tax derailed the FTT. But it resurfaced on a smaller scale—in the 10 countries,” the report states. ‘If the plan succeeds, markets in London, Dublin, Amsterdam and Luxembourg could look more attractive than exchanges in the 10 E.U. countries.”The report also notes that in a bid to clamp down on future tax avoidance, finance ministers from the 10 nations have indicated they may tax asset managers based outside of these countries, if they act as counterparty to help local asset managers avoid the taxes.
“Asset managers around the globe may incur FTT liability, even if the tax is only introduced in 10 E.U. countries. The proposal includes sweeping anti-avoidance measures to ensure companies can’t circumvent the levy. A transaction would be taxed where any one party is established in the 10-nation tax zone—or if the activity involved includes a financial institution there, regardless of where it actually occurs,” the report states.
Elsewhere, banks may also benefit from the FTT’s implementation, from possible increases in costs caused by this shift and demands for derivatives, according to the analysts, who estimate that as much as 90 percent of derivative transactions would be rerouted outside of the 10 countries if the FTT were to be applied.Banks that stand to benefit from business diverting outside of the bloc include U.K. banks Barclays, HSBC and Standard Chartered. Non-U.K. banks in London that may benefit include Goldman Sachs, Morgan Stanley Credit Suisse, the report noted.
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