EU offers 11-nation financial transaction tax with global reach

Growth Concerns

By raising the cost of raising capital, the proposed tax could become “another brake on economic growth” just as the euro area is struggling to pull itself out of the deepest recession since 2009, the Association for Financial Markets in Europe said. In addition, “an FTT with extra-territorial reach runs counter to that important objective” of cooperation among Group of 20 nations, the AFME, which represents international lenders including Deutsche Bank AG, BNP Paribas SA and Royal Bank of Scotland Group Plc, said in an e-mailed statement.

The plan also includes pension funds. The EU argues that a well-designed tax could make pension funds safer by encouraging them to make untaxed purchases on the primary market and hold securities to maturity. When EU ministers last month allowed the 11 willing nations to proceed with transaction-tax negotiations, the spill-over effects on pension funds were a concern.

The Netherlands will wait before deciding whether to sign up, said Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area finance ministers. “One of the criteria for us is our pension funds,” he said. “It’s very important that these pension funds are not harmed by a new tax.”

U.K. Abstention

A weighted majority of EU finance ministers backed the measure in a Brussels meeting last month. The U.K., home to the Europe’s largest financial center, abstained along with Malta, the Czech Republic and Luxembourg. The Confederation of British Industry said yesterday that the tax plan’s extended scope will require extensive review.

“The commission’s FTT proposals are now significantly different from its initial plans, so the impact on growth and jobs must be assessed before proceeding,” Matthew Fell, CBI director for competitive markets, said in a statement.

While the U.S. will study the proposal, it doesn’t support the European financial transactions tax, according to a U.S. Treasury Department spokeswoman who asked to not be named. The tax would harm U.S. investors who bought affected securities, a concern that Treasury officials have raised with their European counterparts, the spokeswoman said.

The EU said it will investigate double-taxation issues that might arise from the proposal.

Bloomberg News

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