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Council of the European Union Publishes Note on the State of Play of the Financial Transaction Tax

The Council of the European Union has published a note from the General Secretariat concerning the state of play of the ongoing enhanced cooperation procedure for the introduction of a Financial Transaction Tax (FTT).

According to the note, the participating Member States have indicated that further negotiations on FTT and drafting of a compromise text of the future Directive will be made against the basis of the agreed upon broad lines relating to a number of the building blocks of FTT (the "Core Engine"). As provided in the note, this "Core Engine" includes the following:

I. Territoriality

  • Shares: Cumulation of residence, issuance principles. As a first step, harmonized taxation shall only be applied to shares of the participating Member States. After a transition period, it shall be extended to all shares unless participating Member States decide otherwise.
  • Derivatives: as in Commission proposal.

II. Tax base for derivatives

  • For option-type derivatives, the tax base should preferably be based on the option premium.
  • For products others than option-type derivatives and coming with a maturity, a kind of term-adjusted notional amount/market value (where available) might be considered as the appropriate taxable base.
  • For products others than option-type derivatives and not coming with a maturity, the notional amount/market value (where available) might be considered as the appropriate taxable base.
  • In some cases, adjustments to the tax rates or to the definition of the tax base might be necessary in order to avoid distortions.

III. Scope of derivatives

  • Repos/reverse repos and transactions of public debt managers and their counterparties shall be exempt from the scope of the Directive.
  • Apart from that, all derivatives shall be taxed; however, certain products with directly underlying public debt should be exempt during a transition period that may be extended if agreed to.

IV. Market Making (for shares markets)

A reduced minimum rate (80% of normal tax rate) can be applied for market makers bound by a contract with a specific trading venue to carry out market making activities with regard to specific shares, irrespective of whether it is proprietary trading or market making.

V. Taxable event for securities

Taxation of gross transactions.

VI. Transaction chain

Taxation of all transactions in the chain except agents and clearing members (when acting as facilitators) according to Commission proposal.

VII. Real economy and pension funds

Further analysis with regard to real economy and pension funds is required.

Currently, 10 EU Member States are participating in the enhanced cooperation procedure for the FTT: Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovak Republic, Slovenia, and Spain.

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