LONDON — The European Union's executive formally proposed on Thursday a tax on financial trading in 11 countries to raise up to 35 billion euros annually, saying it was a first step to applying the levy across the whole bloc.
The European Commission set out how its financial transaction tax (FTT), aimed at making banks pay for taxpayer help they received in the financial crisis, would apply from next January, the rate at which it would be set, and safeguards to stop avoidance.
The plan was requested by 11 countries who represent two-thirds of EU economic output and have already agreed to voluntarily press ahead with the tax after the bloc's 16 other members refused to back an earlier, pan-EU proposal.
Attempts to introduce a global "Tobin Tax", named after the U.S. economist who devised a tax on transactions in the 1970s, have also floundered due to U.S. opposition.
EU Tax Commissioner Algirdas Semeta said the bloc's financial sector was "under-taxed" to the tune of 18 billion euros ($24 billion).
"It lays the final paving stone on the road towards a common FTT in the EU," he said in a speech to present his plan.
The Commission said 85 percent of the transactions targeted take place between financial firms but if some costs were passed on to consumers, this would not be "disproportionate".
"Any citizen buying, for example, 10,000 euros in shares would only pay a 10 euro tax on the transaction," it said.
Pension funds will come under the tax's scope but the cost will be "extremely limited" if their turnover in shares is low.
How to stop banks passing on their costs to professional and retail customers is a much tougher question to address.
Member states will haggle over the plan, with changes likely before it takes effect. Only the 11 countries have a vote and must be unanimous for the plan to take effect.
The tax would be set at 0.01 percent for derivatives, and 0.1 percent for stocks and bonds.
Many of the plan's basic elements follow the discarded pan-EU proposal but the anti-avoidance safeguards have been beefed up and new exemptions added.
The new "issuance principle" means a transaction will be taxed whenever and wherever it takes place, if it involves a financial instrument issued in one of the 11 countries.
This is aimed at stopping trades moving out of the so-called FTT zone to London or elsewhere and reinforces an earlier "residence principle" which says if a party to the transaction is based in the FTT area, or acting on behalf of a party based there, then the transaction will be taxed regardless of where it takes place.
The Commission says the combination will remove incentives to relocate trading though not everyone is convinced.
"The financial services industry is now mobilizing very quickly to think about strategic solutions to the FTT following the adoption of the decision to go ahead," said Mark Persoff, a financial services tax partner at Ernst & Young consultancy.
The safeguards may prove controversial for Britain, Europe's biggest financial trading center, but it will not be able to stop the plan or have a vote to amend it.
The UK has already introduced a balance sheet levy on banks.
Chas Roy-Chowdhury, head of taxation at the ACCA, an independent accounting body in London, said banks and brokers will take no chances and create a "firewall" by offering products that cannot be "tainted" by the tax.
© 2014 Thomson/Reuters. All rights reserved.