Critics of the so-called Tobin Tax which is named after the Nobel prize-winning economist, James Tobin, who first suggested a tax on all payments from one currency to another in 1972, argue that in its new updated form, the scope of the FTT has radically escalated since its last draft. It is now likely to include a large range of big corporates, not just financial companies. The UK government has expressed fears that the tax would hit growth.
In Brussels, EU tax commissioner Algirdas Semeta heralded the FTT as a “world first” and said it would raise up to €35bn (£30bn) of revenue and force banks to “engage in more responsible activities”.
He claimed that the EU financial sector was “under-taxed” by €18bn and that the levies, of 0.01% for derivatives, and 0.1% for stocks and bonds, would ensure that the “financial sector makes a fair and substantial contribution to public revenues”. He said the plan approved by the 11 member states “lays the final paving stone on the road towards a common FTT in the EU”.
The fresh proposals, approved on February 14, increase efforts to stop traders shifting transactions to anywhere out of the FTT zone. The “residence principle”, of imposing the tax on all trading carried out by resident companies, regardless of where the trade occured, has been expanded to include an “issuance principle”.
This includes all financial instruments originating from a resident country. Shares traded in a German company, for example, between banks in London and New York would be liable to pay the tax. The inference is that this would impact on all sorts of companies not just financial ones.
The CBI, the UK trade body, said because the new plans were different from initial plans the impact on growth and jobs must be assessed before proceeding.
Bodies inlcuding the US Chamber of Commerce and The Financial Services Forum wrote to the commission objecting to the unilateral imposition of a global financial transaction tax. They argued that the proposals were inconsistent with existing norms of international tax law and treaty commitments. Washington has voiced concerns that the tax may harm US investors living in the US.
The UK government, with the backing of Luxembourg, has warned that the proposals may breach EU treaties.
The new proposals state that to escape the proposed tax, companies in other nations would have to entirely cease financial services businesses with the 11 nations involved.
Supporters of the tax are unlikely to garner the necessary political support to extend it because of fears that it may harm the growth of the eurozone, and even global economies.
