Capital Markets Advisors

Turning Change Into Opportunity


Tim Cave and Anish Puaar | 07 Aug 2014


The proposed European financial transaction tax may be collected through a central industry utility, raising the possibility of using existing market infrastructure such as trade repositories to gather the levy.

The creation of a “dedicated tax collection utility” is one of four options listed in a European Commission document on the FTT’s “collection methods and data requirements”. The document, seen by Financial News, is part of a study being carried out on collection methods and was presented to a European Council Working Party on Tax Questions on July 15. A Commission spokesman said the study was ongoing and did not comment further.

The document said a utility collection method would be “comparable” to transaction reporting systems introduced in the US and Europe since 2008 as part of post-crisis reforms to bring greater transparency to derivatives markets. The systems are known as trade repositories and effectively warehouse information on derivatives trades for the benefit of regulators.

The presentation document said the benefit of this approach would be the “leverage of existing and future transactions reporting” infrastructure, as well as “market standardisation and global accessibility”. However, it added that the “feasibility of data matching” may work against the proposal.

The FTT, which was first proposed by the European Commission in February 2013, is set to be finalised in scope by the end of this year. It is being introduced using a framework known as “enhanced cooperation”, which allows EU laws to be passed with the backing of at least nine member states. The FTT is currently supported by 11 member states, although one of the countries, Slovenia, is reassessing its involvement. The levy would impose a 0.1% tax on share and bond trades and a 0.01% charge on derivatives transactions.

Another option for collecting the tax included in the presentation was self-administration, whereby each institution subject to the tax determines, pays and reports the FTT to their local authorities.

A third option is a delegation model, where the collection and reporting is passed to another institution involved in the transaction. This is similar to the UK and French stamp duties, and is regarded as “more flexible” than the self-administered model.

A final option is the use of existing clearing or settlement arrangements, which would have a “relatively low running cost”, the report said.

A lack of agreement between the 11 countries since the FTT was first proposed has led to a rethink on the tax’s scope and how it should be introduced. During a meeting on May 6, European finance ministers agreed to introduce the FTT on a phased basis, starting from January 2016, delayed from the start of this year.

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