France Outlined a Blueprint for Introducing Its Own Tax on Financial Transactions on Tuesday
Jan 24 (Reuters) - France outlined a blueprint for introducing its own tax on financial transactions on Tuesday, in a fresh attempt to win backing from other EU members for a scheme that Britain has pledged to block across the 27-member European Union.
Germany and France have revived a concept similar to that of U.S. Nobel laureate James Tobin, who proposed a tax on currency transactions in the early 1970s to discourage speculation. His idea was largely ignored until recently.
In the run-up to presidential elections this year in France, and German elections in 2013, and amid widespread mistrust of banks after the financial crisis, the debate has gathered momentum. But introducing a tax on trading faces hurdles.
Below are some questions and answers on the possible tax.
HOW MIGHT A TAX ON FINANCIAL TRANSACTIONS WORK IN PRACTICE?
Last year, the European Commission proposed a scheme to tax stock, bond and derivatives trades from 2014, potentially raising 57 billion euros ($74 billion) with much of it from Britain, the region’s biggest trading centre.
It would be similar to Britain’s current stamp duty of 0.5 percent on trading shares, which raised almost 3 billion pounds in the financial year to April 2011.
Under the proposal, which needs the backing of all 27 member states to become law, stock and bond trades would be taxed at the rate of 0.1 percent, with derivatives deals at 0.01 percent.
The EU’s executive has said the tax would be imposed on all financial transactions between financial institution where one or both are based in the European Union.
But it may prove difficult to realise such a tax, plans for which have drawn criticism from the European Central Bank and others, who say it may drive trading out of countries where it is introduced.
WHAT ARE THE HURDLES TO IMPOSING THE TAX?
Critics say such a tax drives away traders. Sweden, one of the most outspoken opponents of the idea, saw trading migrate from Stockholm to London when it introduced its own levy in the mid-1980s.
European Commission officials are trying to develop a formula to spread the impact of the tax by taking into account factors other than the location of the trade. A German bank doing a deal in London with a Spanish bank, for example, would generate tax bills not in London, but in Spain and Germany. The banks’ headquarters and not their UK branches would pay.