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France tries to unblock European FTTnegotiations

Published: 04/11/2014 - 15:46

Michel Sapin has tried to move the FTT debate forward. [Parti socialiste/Flickr]

French Finance Minister Michel Sapin has urged his Europeancounterparts to make derivatives play a very small part in the tax basefor the Financial Transaction Tax. Sapin hopes this will unblocknegotiations on the project, which has been at an impasse for 2 years.EurActiv.fr reports.

The European Financial Transaction Tax is at a standstill. The thorny subjectwas taken off the agenda of the latest Ecofin Council in October, and did notfeature in the meeting of French and German Finance Ministers on 20October in Berlin.

The dossier will make it back onto the agenda for the meeting of EU FinanceMinisters in Brussels on 7 November, and the member states have giventhemselves until the end of December to define the scope of the Europeantax, which they hope to launch in 2016.

"French mini-tax"

The Financial Transaction Tax has been in force in France since 2013.Considered a "mini-tax" by some, the FTT takes 0.2% on share purchases.

At a press conference organised by several French NGOs, Arielle Malard deRothschild, Managing Director of Rothschild and President of CARE France,

said "I do not think the tax we have put in place in France is a model forefficiency. It will have to evolve in line with the European FTT negotiations."

And with good reason. While the French FTT is only expected to raisearound 800 million euros this year, a tax applied to shares, bonds andderivatives across the 11 European countries involved could see itsrevenues soar.

Depending on the scope of the FTT, it could raise between 9.6 and 24.4billion euro per year in France, according to estimates from the consultingfirm SIA Partners.

The Copenhagen Institute estimates that FTT revenues in Germany could bebetween €17 and 28 billion.

French ambiguity

If the advantages in terms of revenue are plain to see, the Frenchgovernment is eager not to push the FTT too far, fearing that traders willmake their financial transactions elsewhere, causing a collapse in thederivatives market, a very important sector for French banks.

>> Read: Financial lobbies angry at FTT (in French)

"France is one of the greatest advocates of the Financial Transaction Tax,but also one of the main opponents of making it an ambitious tax," saidAlexandre Naulot, of Oxfam France. "The enhanced cooperation is now atrisk because of the French position," he added.

In an editorial published in Les Echos on 4 November, the French FinanceMinister, Michel Sapin, put forward a compromise whereby shares andbonds would be taxed at 0.1%, and derivatives at 0.01%, a less ambitiousproject than the initial European Commission proposal.

The Minister said that an agreement "is within reach," and proposed "taxingtransactions on quoted shares [...]. States could extend the tax to unquotedshares if they so wished". Sapin also recommended applying the tax to onlythe most speculative of derivatives: the CDS, or Credit Default Swap.

Residency vs place of business

Another new proposal put forward by the Finance Minister was that the taxshould be collected on transactions issued by companies "based in one ofthe 11 participating countries [...] regardless of where the transaction takesplace or where the financial intermediary is based".

Some members of the enhanced cooperation group, particularly thesmaller member states lacking in large businesss, would prefer the tax to becollected in the country where the transaction takes place. This would allowthem to benefit from the FTT.

To reassure these smaller countries, the French Minister proposed theapplication of a "residency principle" to decide who collects the tax. In the

case of a "Portuguese bank buying shares in a French business, theproceeds would go to Portugal; if these same shares were bought by aFrench bank, or a bank from outside the 11 participant countries, theproceeds would go to France," he explained.

2014 target increasingly remote

The meeting on 7 November may be the last chance for the 11 memberstates participating in the enhanced cooperation project to keep theirobjective of reaching an agreement by the end of the year.

But the chances of an agreement being signed by the end of Decemberappear slim. According to an internal document from the German FederalMinistry of Finance, there is still "quite a distance" separating the positionsof the member states. This means the target date of the end of December2014 will be "difficult, if not impossible to achieve," the document said.

TIMELINE: 7 November: meeting of Ecofin Council in BrusselsEnd of December 2015: provisional date for obtaining a compromiseon FTT2016: implementation of FTT

EXTERNAL LINKS:

European Commission

Proposal of 14 February 2013... and the way aheadInitial proposal of 28 September 2011... and its fateIs the FTT as proposed in compliance with international taxation andEuropean law?

Press

Taxing financial transactions: up to 24 billion to be gained (in French)- Challenges - October 2014Editorial by Michel Sapin: Financial Transaction Tax: let's stopprevaricating (in French) - Les Echos - October 2014

Institutes

A European Financial Transaction Tax, Revenue and GDP effects forGermany - Copenhagen Economic - March 2014

EurActiv.fr | Cécile Barbière (translated from French by Samuel White )

Sections: EURO & FINANCE

People: MICHEL SAPIN

Locations: FRANCE EUROPE

Topics: FINANCIAL TRANSACTIONS TAX (FTT)