Tax on Financial Transactions in the European Union

by | Apr 2, 2024 | Definition | 0 comments

Tax on Financial Transactions in the European Union

Discussed since the 1970s and regularly brought to the fore, the European Union’s Financial Transaction Tax (FTT) is a hot topic that combines economic and political issues. Intended to curb speculation and generate new tax resources, the FTT remains an unfinished project, giving rise to debate and controversy.

What is the Financial Transaction Tax in the European Union?

The purpose of the FTT is to impose a tax on exchanges of financial products between financial institutions. Even if the rate envisaged is low, often less than 1%, the stakes are high due to the high volume of daily financial transactions. This European tax proposal aims to limit purely speculative transactions that can destabilize markets, and to mobilize funds for projects of general interest.

History and rationale of the FTT

Genesis of the FTT

The origins of the proposal

This idea, sometimes referred to as the Tobin tax after the economist who first proposed it, James Tobin, was originally intended to deter currency speculation. However, the 2008 financial crisis gave the proposal renewed impetus: the European Union reworked it to make it applicable to a wider range of financial products.

Why a Europe-wide FTT?

The value of such a tax at European Union level lies in its ability to harmonize tax provisions between member countries, while generating resources that can support common public policies, for example in the fields of sustainable investment or international solidarity.

The Economic and Political Stakes of the FTT

Impact on financial markets

Effect on speculation and high-frequency trading

Supporters of the FTT argue that it can help regulate financial markets by discouraging ultra-fast, speculative transactions, such as high-frequency trading, which can lead to instability.

Breakdown of FTT revenues

Where will the money go?

The question of redistributing the sums collected is essential. Several EU member countries are considering using these resources to finance transnational projects, such as the fight against climate change or support for developing countries.

Implementation and difficulties encountered

Disparities between member countries

Implementation Challenges in the EU

The main obstacle to deploying the FTT is political: unanimity between member states is difficult to achieve, as each has its own fiscal and financial interests. Some are in favor of an ambitious tax, while others fear the impact on their domestic financial sector.

Dialogue with market players

Acceptance of the FTT by the financial sector

Resistance from the financial industry is not insignificant, with arguments centered on the potential risks to the competitiveness of European financial centers compared with zones not subject to this tax, such as the free trade zone.

Concrete examples and national cases

Adoption of the FTT by certain Member States

France and the FTT

France is one of the forerunners in implementing a nationwide tax on financial transactions. The French experience could serve as a model or lesson for the implementation of the tax at a European level.

Frequently asked questions

Here is a list of frequently asked questions for Financial Transaction Tax in the European Union.

What is the FTT rate envisaged by the EU?

The rate varies according to proposals and financial products, but is generally a very low percentage, often less than 0.5% of the transaction amount.

Does this apply to all financial products?

No, the scope of application will depend on the final directive. Some want to include equities, bonds, derivatives and other instruments, while others advocate a more targeted approach.

When could the FTT come into force?

The timeframe for application has not yet been determined, given the negotiations currently underway. Adoption in the short to medium term seems plausible, but several obstacles remain.

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