EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 24 July  2012 
on the financial transaction tax  
(CON/201 2/59) 
 
Introduction and legal basis  
On 3 July 2012, the European Central Bank (ECB) received a request from the Hungarian Ministry for 
the National Economy for an opinion on a new  draft law introducing a financial transaction tax 
(hereinafter the ‘FTT  Law’). On 5 July 2012 the ECB received a request from the Ministry for an opinion 
on a new amending proposal to the FTT Law . On 9 July 2012 the Parliament adopted the FTT Law  with 
the changes introduced by the new amending proposal.  
The ECB’s competence to deliver an opinion is based on Article s 127(4) and 282(5) of the Treaty on the 
Functioning of t he European Union and the third indent of Article 2(1) and Article  2 (2) of Council 
Decision 98/415/EC of 29  June  1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions1, as the FTT Law  relate s to the Magyar Nemzeti Bank 
(MNB ) and its monetary policy instruments . In accordance with the first sentence of Article 17.5 of the 
Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1.  Purpose of the FTT Law  
The FTT will become payable in connection with:  
(a)  the specified ty pes of payment obligations whereby at the value date of the relevant transfer order 
the payment service provider with a head office or branch in Hungary is obliged to pay the tax 
calculated as a percentage of the amount debited on the payer’s payment accou nt or of the money 
transfer. The applicable tax rate is 0.1%, subject to a cap of HUF 6 000 per payment; and  
(b)  the issuance of MNB bills with a maturity of up to two weeks, or the placement of overnight deposits with the MNB, whereby at the issuance or  the value date, the MNB is obliged to pay the 
tax calculated as a percentage of the face value of the security discounted with the daily central bank base interest or  of the amount of the overnight deposit. The applicable tax rate is 0.01% for 
the overnight deposits and 0.1% for the MNB bills, without a cap.  
 
                                                 
1 OJ L 189, 3.7.1998, p. 42.  
ECB -PUBLIC  
2 2.  Breach of  the consultation obligation  
The ECB received the initial  request by the Ministry for  an urgent consultation on the FTT Law on 
3 July 2012. A revised version of the law , introducing furth er changes to the MNB -related provisions, 
was received by the ECB on 5 July 2012. The Parliament adopted the FTT Law less than two business 
days later on 9 July 2012.  
According to  Article 4 of Decision 98/415/EC , the ECB must be consulted ‘at an appropriat e stage’ in the 
legislative process. This implies that the consultation should take place at a point in the legislative process 
which affords the ECB sufficient time to examine the draft legislative provisions and adopt its opinion, 
and also enables the re levant national authorities to take the ECB’s opinion into consideration before the 
provisions are adopted.  
In this respect, the ECB once again stresses its position that even cases of particular urgency do not 
relieve national authorities from their duty  to consult the ECB and to allow sufficient time to take into 
account its views in accordance with Decision 98/415/EC. The Hungarian Government should have 
postpone d the final vote on the draft law until such time that would have allow ed for a proper 
consu ltation with the ECB , as well as due consideration of the ECB Opinion. Furthermore, t he ECB 
would appreciate the Ministry honouring its obligation to consult the ECB in due time in the future.  
 
3.  Effects of the FTT on the MNB  
The MNB is a public institution  whose primary objective , in line with the Treaty , the Statute of the 
European System of C entral Banks and of the European Central Bank (hereinafter the ‘ Statute  of the 
ESCB’)  and the Law on the MNB , is to maintain  price stability2. The  main task  carried out by the MNB 
for maintaining price stability is to define and implement monetary policy . In performance of such tasks 
by the MNB, the  Hungarian authorities should respect the principle of central bank independence.  
The principle of c entral bank independence referred to in  Article 130 of the Treaty  and Article 7 of the 
Statute  of the ESCB  requires inter alia  that: (i) an NCB ’s functional independence is ensured by having 
the necessary means and instruments for achieving price stability independently of any other authority, 
(ii) an NCB ’s institutional independence is respected and the NCB is not  influenced by third parties in the 
performance of its tasks, and (iii) an NCB  enjoys  financial independence3.  
However, t he new FTT  Law i mpair s MNB’s functional an d institutional independence4.  
                                                 
2 Article 127(1), first sentence of the Treaty and Article 2, first sentence of the Statute of the ESCB . Section 2(1) of Law 
CCVIII of 2011 on  the Magyar Nemzeti Bank.  
3 The concept  of financial independence should be assessed from the perspective of whether any third party is able to 
exercise direct or indirect influence over the NCB’s ability to fulfil its mandate, both operationally in terms of manpower 
and financially in terms of appropriate financial resources. See ECB Convergence Report May 2012 , p. 25. The NCB 
should in all circumstances have at its disposal the necessary resources to conduct monetary policy. Hence, it is of utmost importa nce to allow the central bank to make a sufficient provision of reserves during years of profits in order to face 
possible future losses without weakening its financial means to implement its monetary policy.  See also paragraph 2.4.1 
of ECB Opinion CON/2009/83.  
4 See also Section 1(2) of Law CCVIII of 2011 on the Magyar Nemzeti Bank . 
ECB -PUBLIC  
3 First, i t disrupts the monetary policy transmission mechanism5 by affecting the attractiveness of overnight 
deposits and MNB bills to the MNB  and commercial banks, depending on the final burden- sharing of the 
tax.  
In this r espect, while generally a central bank is expected to exercise financial prudence, its measures 
need to be driven by its monetary policy role and not by profit/cost assessments. Thus, in line with its 
mandate, the MNB may not simply transfer the burden of the FTT to its counterparties by, for instance, 
lowering its deposit interest rate. The MNB is not a commercial entity and such decision has to be determined by price stability concerns such as a need to increase liquidity in the market. In addition, the FTT can indirectly affect monetary policy implementation through its likely detrimental impact on 
financial market liquidity that could impede price discovery. This will complicate the achievement of the MNB’s monetary policy objectives .  
Second, the FTT af fects the ability of the MNB to select freely the monetary policy tools that best serve 
the primary objective of price stability, as it introduces cost considerations that are unrelated to the 
original design of such tools. Thus monetary policy instruments  best suited for transmitting the MNB 
policy decisions to the wider economy in the absence of the FTT could be severely disabled by subjecting them to the FTT.  
In addition, the imposition of the FTT on the MNB’s operations, which is not justified for the reasons specified above, may interfere with the MNB’s financial independence . The MNB would need to pay the 
FTT from its own resources leading to de facto limiting the financial resources available to the MNB to 
carry out its ESCB -related tasks.  
The impos ition of a tax on the  MNB’s monetary policy operations , which is not compatible with the 
MNB’s  functional  and institutional independence  and thus not justified for the reasons specified above,  
could also be seen as creating means to  finance the public sect or from central bank money . Therefore, the  
MNB’s payment of the FTT to the State is not  compatible  with the monetary financing prohibition laid 
down in Article 123(1) of the Treaty
6.  
 
4.  The general impact of an unharmonised introduction of the FTT  
The E CB has drawn attention to the potential negative side -effects of the Hungarian Government’s 
previous policy of temporarily raising the financial sector’s tax burden on the financial sector’s capital  
                                                 
5 Since the summer of 2001, monetary policy in Hungary has been conducted within an inflation- targeting framework, 
under which the MNB aims to meet a publicly announced inflati on target using various monetary policy instruments. The 
main instrument of monetary policy is the central bank base rate, which affects future inflationary developments via 
various channels of monetary transmission. Within this framework, the MNB conducts  open market operations with two -
week MNB bills (debt issuances) that carry the base rate, and accepts deposits by commercial banks at interest rates linked to the base rate, with a corresponding impact on banking sector liquidity and the wider spectrum of  interest rates.  
6 The prohibition on  monetary financing under Article 123 of the Treaty aims at preventing central banks from providing 
overdraft facilities or any other type of credit facility to the public sector, which includes any financing of the public sector’s obligations vis -à-vis third parties.  See ECB Convergence Report May 2012, p.  28. 
ECB -PUBLIC  
4 accumulation ability and credit availability7. The FTT La w’s introduc tion of a permanent  FTT, 
particularly  in a manner which is not harmonised with other Member States , may produce  distortions in 
financial markets and the real economy through:  (i) increasing the cost of capital as the tax burden is 
likely to be shared with users of financial services, (ii) reducing financial market liquidity and access to 
finance, by increasing the costs of transactions, and (iii) producing incentives for tax evasion and/or 
avoidance that may, inter alia , divert economic and fina ncial activity to other Member State s. The ECB 
draws the attention of the Hungarian authorities to the advanced legislative process for harmonisation of 
the FTT at Union level  through the propos al for a  Council directive on a common system of financial 
transaction tax and amending Directive 2008/7/E C (hereinafter the ‘proposed FTT Directive’)8. While the 
legislative process is still on -going, the ECB considers that such harmonisation, i n particular the 
exclu sion of  transactions with the ESCB central banks f rom the FTT base, is important t o avoid a 
‘negative impact on the refinancing possibilities of financial institutions or on monetary policies in 
general’9 and to mitigate economic distortions.  
 
This opinion will be published on the ECB’s website.  
 
 
Done a t Frankfurt am Main, 24 July  2012.  
 
[signed]  
 
The Vice -President of the ECB  
Vítor CONSTÂNCIO  
                                                 
7 See paragraph 3.2 of ECB Opinion CON/2010/62. In 2010, a special tax, envisioned as a temporary measure, was 
imposed on financial institutions. The tax was appl ied at differentiated tax rates on banks’ balance sheet totals at  2009 
(constant base).  
8 COM(2011) 594 final of 28 September 2011.  
9 See Article 1(4)( d) and recital 6 of the proposed FTT Directive.