COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a COUNCIL DIRECTIVE implementing enhanced cooperation in the area of financial transaction tax Analysis of policy options and impacts
Date: 2013-02-14
Institutions: European Commission
Subjects: Austria, Belgium, Estonia, European tax cooperation, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain, enhanced cooperation, financial transaction, indirect tax, tax harmonisation

EUROPEAN 
COMMISSION 

Brussels, 14.2.2013  
SWD(2013) 28 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a COUNCIL DIRECTIVE 

implementing enhanced cooperation in the area of financial transaction tax 
Analysis of policy options and impacts 

{COM(2013) 71 final} 
{SWD(2013) 29 final} 

EN 

   EN 

 
 
 
 
  
 
Implementing enhanced cooperation in the area of financial transaction tax 
Analysis of policy options and impacts 

This  document  is  a  response  to  the  request  by  both  participating  and  non-participating 
Member States for an analysis of the impacts and economic consequences associated with the 
introduction  of  a  financial  transaction  tax  by  way  of  enhanced  cooperation.  It  also  tries  to 
identify and analyse options that help to minimize evasive actions, distortions and transfer of 
financial  services  to  other  jurisdictions,  and  it  analyses  the  impacts  of  some  of  the  options 
discussed in the Council's Working Party on "Tax Questions" under the Danish Presidency in 
the first half of 2012. This document does not constitute in itself an Impact Assessment and it 
should  be  read  in  conjunction  with  the  Impact  Assessment  having  accompanied  the  initial 
proposal  and  additional  analysis  undertaken  and  made  public  by  the  European  Commission 
since,  as  it  builds  on  the  findings  of  these  analyses  and  makes  use  of  them.  This  document 
commits only the Commission's services involved in its preparation. 

2 

 
 
 
 
 
 
 
Contents 

1. 

INTRODUCTION........................................................................................................................... 4 

2.  PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ...................... 6 

3.  PROBLEM DEFINITION AND SUBSIDIARITY ........................................................................ 8 

3.1 

Problem definition................................................................................................................... 8 

3.2 

EU right to act and subsidiarity ............................................................................................... 9 

4.  OBJECTIVES ............................................................................................................................... 11 

5.  POLICY OPTIONS....................................................................................................................... 13 

6.  ANALYSING THE IMPACTS OF DIFFERENT POLICY OPTIONS FOR A COMMON 
SYSTEM OF FTT UNDER ENHANCED COOPERATION .............................................................. 16 

6.1 

The Commission proposal under enhanced cooperation (Option C)..................................... 16 

6.2 

Sub-Option 1: Exempting certain products ........................................................................... 25 

6.3 

Sub-Option 2: Exempting certain actors ............................................................................... 33 

6.4 

Sub-Option 3: Changing the provisions on the residence principle ...................................... 39 

6.5 

Sub-Option 4: Phasing in of the common system ................................................................. 43 

6.6 

The macro-economic effects of an FTT under enhanced cooperation .................................. 44 

6.7 

Other (micro-)economic effects ............................................................................................ 47 

7.  COMPARING THE DIFFERENT POLICY OPTIONS .............................................................. 50 

8. 

IMPLEMENTATION, MONITORING AND EVALUATION ................................................... 53 

8.1 

Implementation...................................................................................................................... 53 

8.2  Monitoring............................................................................................................................. 55 

8.3 

Review................................................................................................................................... 58 

Annex 1: Taxes on transactions in financial instruments in the EU...................................................... 60 

Annex 2: Taxes on transactions in financial instruments in third countries.......................................... 69 

3 

 
 
 
 
1. 

INTRODUCTION 

On  28  September  2011,  the  Commission  adopted  a  proposal1  for  a  Council  Directive  on  a 
common system of financial transaction tax (FTT) and amending Directive 2008/7/EC2.  

The legal basis for the proposed Council Directive was Article 113 TFEU, as the Commission 
proposed provisions for the harmonisation of legislation concerning the taxation of financial 
transactions to the extent necessary to ensure the proper functioning of the internal market for 
transactions  in financial  instruments  and to avoid distortion of competition. This legal basis 
prescribes Council unanimity in accordance with a special legislative procedure, after having 
consulted the European Parliament and the Economic and Social Committee.  

While already before the onset of the financial and economic crisis some Member States had 
narrowly-based taxes on some financial transactions in place3, several others have decided or 
committed themselves to either introduce such a tax, broaden its scope and/or increase the tax 
rates  so  as  to  ensure  that  financial  institutions  make  a  fair  and  substantial  contribution  to 
covering the costs of the recent crisis, and for consolidating public budgets. 

In  this  context  the  efficient  functioning  of  the  internal  market  (for  financial  services  and 
beyond)  required  action  intended  to  avoid  distortion  of  competition  across  borders,  and 
among  products  and  actors.  Also,  considerations  as  regards  tax  neutrality  required 
harmonisation  with  a  broad  scope,  notably  to  also  cover  very  mobile  products  such  as 
derivatives, mobile actors, and market places. 

The Commission's proposal for a Directive on a common system of FTT set out the essential 
features  of  such  a  common  system  for  a  broad based FTT  in the EU that  aims  at  achieving 
these  objectives.  It  was  conceived  so  as  to  minimise  the  risk  of  relocation,  notably  by 
foreseeing very low tax rates, taxing both ends of the transaction, and foreseeing a taxation of 
all  financial  transactions  in  financial  instruments  (all  markets,  all  actors,  all  products)  in 
which  at  least  one  party  to  the  transaction  is  established  in  a  Member  State  and  where  a 
financial institution established in the territory of a Member State is party to the transaction, 
acting either for its own account or for the account of another person, or is acting in the name 
of  a  party  to  the  transaction.  Thus,  the  tax  could  only  be  avoided  by  those  financial 
institutions that no longer wanted to serve the EU market. 

However,  despite  these  powerful  anti-relocation  measures  foreseen,  already  during  the  first 
relevant  meeting  of  the  Council  on  Economic  and  Financial  Affairs  of  8  November  2011, 
some  Member  States  declared  that  they  were  against  any  common  system  of  financial 
transaction  tax  at  the  level  of  the  European  Union  unless  an  FTT  of  similar  kind  was 
introduced at the global level.4 

1 COM(2011) 594 of 28 September 2011. 
2 Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital, OJ L 46, 
21.2.2008, p. 11–22. 
3 At present, there are ten Member States that have a form of FTT in place in the EU 27, out of which three are 
situated in the EU11. Three others from the EU 11 have planned to introduce one as of next year. See Annex 1 
for more details. 
4 See section 3.1 for more details on this. 

4 

 
 
 
                                                            
During the seven meetings of the Council's "Working Party on Tax Questions – Indirect Tax 
(FTT)" (hereafter "Council Working Party"), first under the Polish and then under the Danish 
Presidency,  in  which  also  numerous  alternative  design  features  of  an  FTT  based  on  the 
Commission proposal were tabled, examined and discussed, it was confirmed that unanimous 
support for a common system of FTT, be it along the lines of the Commission proposal or any 
variant thereof, could not be reached at the level of all Member States.  

At  the  Council  meeting  on  22  June  2012,  the  Member  States  that  had  expressed  their 
opposition to  a common system of FTT already at  earlier stages reiterated their position. In 
those  circumstances,  several  other  Member  States  voiced  their  intention  to  request  an 
authorisation  for  engaging  in  enhanced  cooperation  in  accordance  with  Article  20  TEU  and 
Article 329 TFEU. Some of the opponents to a common system of FTT (of any kind) stated 
that they would not oppose a procedure of enhanced cooperation on this issue in case all the 
necessary requirements were met.  

Having regard to the views expressed, the (Danish) Presidency concluded at the same meeting 
that support for an FTT as proposed by the Commission was not unanimous. The Presidency 
also  noted  that  there  was  support  by  a  significant  number  of  delegations  for  considering 
enhanced cooperation.  

At  the  Council  meeting  of  10  July  2012,  the  (then  Cypriot)  Presidency  referred  to  the 
discussions  held  at  the  Council  meeting  of  22  June  2012.  It  noted  the  lack  of  unanimous 
support  for  the  FTT  proposal  discussed  under  the  Danish  Presidency.  It  concluded  that 
essential differences in opinion persist as regards the need to establish a common system of 
FTT  at  EU  level  and  that  the  principle  of  harmonised  tax  on  financial  transactions  will  not 
receive unanimous support within the Council in the foreseeable future. It finally noted that 
there  is  support  by  a  substantial  number  of  Member  States  for  considering  enhanced 
cooperation, which would allow a limited number of Member States to first proceed among 
themselves. 

In these circumstances, eleven Member States (Austria, Belgium, Estonia, France, Germany, 
Greece,  Italy,  Portugal,  Slovakia,  Slovenia,  Spain)  have  addressed  formal  requests  to  the 
Commission indicating that they wish to establish enhanced cooperation between themselves 
in the area of the establishment of a common system of FTT and that the Commission should 
submit a proposal to the Council to that end. 

On  23  October  2012,  the  Commission  presented  its  findings  on  these  requests.  It  could  not 
find a single incidence of non-compliance of these requests with Treaty provisions and, after 
assessing  the  political  opportunity  of  progress  on  this  file,  proposed  a  Council  Decision 
authorising enhanced cooperation in the area of financial transaction tax.5 

The present document summarises the findings of the analysis undertaken by the Commission 
notably in the context of facilitating the discussions in the Council Working Party under the 
Danish Presidency in 2012 and in the context of preparing the ground for the concrete design 
features  of  a  Council  Directive  implementing  enhanced  cooperation  in  the  area  of  financial 
transaction tax. 

5 COM(2012) 631 of 23 October 2012. 

5 

 
 
                                                            
2.  PROCEDURAL ISSUES AND CONSULTATION OF 
INTERESTED PARTIES 
This analysis of policy options and impacts of implementing enhanced cooperation in the area 
of  financial  transaction  tax  benefited  and  builds  on  the  Impact  Assessment  having 
accompanied the initial Commission proposal6, the annexes to that Impact assessment as well 
as additional analysis undertaken and published by the European Commission7. 

The present document also benefited from the consultation of various interested parties over 
the last year, such as Member States, the European and national parliaments, representatives 
of  the  financial  industry  from  within  and  from  outside  the  European  Union,  the  academic 
world, workers' and employers' associations, non-governmental organisations, and the results 
of ad hoc external studies and position papers that had been published in the aftermath of the 
tabling  of  the  Commission's  initial  proposal  on  a  common  system  of  FTT  for  the  entire 
European Union.8 

Commission representatives participated in numerous public events across and outside Europe 
on the establishment of a common system of financial transaction tax. Also, the Commission 
actively  participated  in  a  dialogue  with  various  national  parliaments  and  their  relevant 
committees  that  indicated  interest  in  discussing  the  impacts  and  different  policy  options  for 
taxing the financial sector. 

This consultation complemented the consultation already carried out in the run-up to its initial 
proposal  of  September  2011,  the  conduct  and  results  of  which  had  been  documented  in  the 
impact assessment document accompanying this initial proposal.9 

6 SEC(2011)1102 final. 
7 See e.g. the FTT-dedicated website of the European Commission 
http://ec.europa.eu/taxation_customs/taxation/other_taxes/financial_sector/index_en.htm or ECFIN(2012) – 
Securities Transaction Taxes: Macroeconomic Implications in a General-Equilibrium Model (economic paper by 
Rafal Raciborski, Julia Lendvai, Lukas Vogel) at 
http://ec.europa.eu/economy_finance/publications/economic_paper/2012/ecp450_en.htm . 
8 OXERA (2011) – What would be the economic impact on the EU of the proposed financial transaction tax? 
Review  of  the  European  Commission's  impact  assessment,  OXERA  (2012)  –  What  would  be  the  economic 
impact  on  the  EU  of  the  proposed  financial  transaction  tax?  Review  of  the  European  Commission's  latest 
commentary,  Michiel  Bijlsma  et  al./  Centraal  Planbureau  (CPB)  (2012)  –  An  evaluation  of  the  financial 
transaction  tax,  Stephany  Griffith-Jones  and  Avinash  Persaud  (2012)  –  Financial  transaction  taxes,  Michael 
Wanger  et  al./Oliver  Wyman  (2012)  –  Proposed  EU  Commission  financial  transaction  tax  impact  analysis  on 
foreign exchange markets, John FitzGerald et al./Central Bank of Ireland and the Economic and Social Research 
Institute  (ESRI)  (2012)  –  The  EU  Financial  Transactions  Tax  Proposal:  A  Preliminary  Evaluation  Dorothea 
Schäfer/ Deutsches Institut für Wirtschaftsforschung (DIW) (2012) – Financial Transaction Tax Contributes to 
More Sustainability in Financial Markets, Dorothea Schäfer and Marlene Karl/DIW (2012) – Kurzgutachten – 
Finanztransaktionssteuer,  Alternative  Investment  Management  Association  (AIMA)  (2012)  –  Financial 
transaction  tax.  An  assessment  of  the  European  Commission's  proposed  financial  transaction  Tax,  Oskar 
Henkow  (2012)  –  The  Commission's  proposal  for  a  common  system  of  financial  transaction  tax:  A  legal 
appraisal, Anita Millar/ International Regulatory Strategy Group (IRSG) (2012) – A financial transactions tax: 
Review  of  impact  assessments,  Swedish  National  Debt  Office  (2011)  –  European  Commission  proposal  for  a 
directive on a common system of taxation on financial transactions. 
9 SEC(2011)1102/2 of 28 September 2011. 

6 

 
 
 
                                                            
Not surprisingly, the positions of stakeholders differed according to their affectedness by the 
tax  proposed:  representatives  of  the  envisaged  tax  payers  such  as  banks,  alternative 
investment  funds  and  other  financial  institutions  were  largely  opposed  to  such  a  common 
system (and  an  FTT in general), while representatives of  NGOs and trade unions expressed 
their preference in favour of such a common system (and the FTT in general). 

The seven meetings of the Council Working Party organised under the Polish and under the 
Danish Presidency in December 2011 and between January and June 2012 have also helped 
the analysis and the debate on financial sector taxation to a great extent. 

The analysis of policy options and impacts was presented to IAB on 27 November 2012. The 
IAB  accepted  the  document  subject  to  the  revision  suggested  by  the  board.  The  IAB 
suggested firstly that the report should better indicate what changes have taken place since the 
completion of the original Impact Assessment in financial markets and relevant national tax 
regimes in order to strengthen the baseline scenario. In response, two Annexes describing the 
current  national  tax  regimes  in  the  EU  and  abroad,  together  with  the  interpretation  of  the 
results as well as additional explanation in section 5 were added. Secondly, the IAB noted that 
the report should give a clearer overview of the expected aggregate impacts of the discussed 
options,  especially  with  regard  to  fiscal  stability  and  private  pension  funds,  and  it  should 
provide  more  clarity  about  the  sensitivity  of  the  results  for  the  assumptions  made  regarding 
the recycling of revenues. To implement this suggestion, additional explanation was added in 
sections 6 and 7. Thirdly, the report should better motivate the qualitative assessments made 
in  the  comparison  of  options  and  include  Annexes  that  adequately  summarise  the  main 
quantitative  outcomes  of  the  original  Impact  Assessment.  To  implement  the  suggestions, 
additional explanations and additions covering these aspects have been made throughout the 
document  and  especially  in  Section  6.7.  References  to  the  original  impact  assessment 
quantitative results are directly made in the report in sections 6.1 and 6.5. 

7 

 
 
 
3.  PROBLEM DEFINITION AND SUBSIDIARITY 

3.1  Problem definition 

Initiatives for taxing the financial sector were brought back into the public debate as of 2008, 
when the threatening collapse of the global financial system had triggered massive financial 
interventions by governments around the globe in favour of the financial sector. The costs of 
the crisis in Europe alone are estimated to be in excess of 15 to 20% of the GDP of EU27.10  

The economic development since and the relative successful stabilisation of financial markets 
do not imply a change of the characteristics of the problems to be tackled, namely huge cost 
to rescue the financial sector pre-financed by the tax payer, the ever more pressing need for 
bringing public finances back on a sustainable path and the absence of a fair and substantial 
contribution from the financial sector.  

The aim of these initiatives had been and still is to receive a fair and substantial contribution 
from  the  financial  sector  to  the  financing  of  the  rescue  operations  from  which  it  benefited 
either directly or indirectly. In the aftermath of the  almost meltdown of the global financial 
system  public  debt  in  Europe  soared  by  more  than  20  percentage  points  and  has  reached 
unsustainably high levels which have to be reduced as a priority. In the absence of receiving a 
substantial and fair contribution from the financial sector itself, Member States are forced to 
raise taxes somewhere else in the economy and/or to cut public spending and the provision of 
public goods. 

Further aims voiced in that context were also to discourage transactions that do not enhance 
the efficiency and stability of financial markets as well as high-risk transactions with the help 
of  such  a  tax,  through  this  complementing  and  reinforcing  the  effects  of  recent  and 
forthcoming  regulatory  changes  aiming  at  the  same  objectives.11  Also,  redistributive 
"internalisation" in favour of the financial sector itself and occurring at the expense of its non-
financial clients would have been rolled back to a certain extent.12 

Finally,  other  ideas  on  how  the  revenues  collected  could  be  used  for  were  voiced  (such  as 
financing development or climate policy), including to replenish or strengthen bank resolution 
funds so that in a future crisis it would not have to once again be the tax payer who had to 
step  in  for  rescuing  the  financial  sector.  Taxes  to  be  used  for  such  purposes  were  taxes  on 
some financial transactions only, notably securities (STT), taxes on financial activity (FAT) 
and different forms of bank levies and levies on bonuses.  

It  was  clear  from  the  beginning  of  the  discussions,  that  taxing  financial  transactions  could 
only be meaningful if internationally coordinated in case one wanted to minimize tax induced 
relocation of activity and at the same time generate sufficient revenues. Given the high global 

10 SEC(2011)1102 final. 
11  See  http://ec.europa.eu/internal_market/finances/policy/map_reform_en.htm  for  more  details  on  the 
regulatory reform efforts lead by the Commission. 
12 See sections 6.1 to 6.3 for a more comprehensive discussion of these issues.  

8 

 
 
 
                                                            
mobility of financial services, taxing also very mobile financial transactions, thus going for a 
broad-based  financial  transaction  tax  (FTT)  had  always  been  seen  as  an  option  that  should 
preferably  be  implemented  and  enforced  in  the  context  of  a  globally  co-ordinated  taxation 
policy so as to avoid the risk of tax-induced relocation of financial activities and services. 

As  this  first-best  solution  was  not  considered  likely  to  materialise  in  the  foreseeable  future, 
despite  some  verbal  commitments  at  the  level  of  the  G-20  group  of  countries,  second-best 
solutions  for  taxing  financial  transactions  at  the  regional  level  were  sought.  In  Europe,  this 
culminated with the tabling by the European Commission of a proposal for a common system 
of FTT in September 2011. This proposal contained powerful anti-relocation mechanisms. 

However,  during  the  Council  discussions,  it  became  apparent  that  some  Member  States 
considered  these  anti-relocation  features  of  the  proposal  as  not  being  powerful  enough  and 
they feared of a massive relocation of financial activity to the benefit of non- or low-taxing 
third country jurisdictions and at the expense of their own financial centres and their own real 
economy. 

Also,  some  Member  States  feared  of  negative  knock-on  effects  of  such  a  tax  both  on  the 
efficiency  of  financial  markets  itself,  on  the  non-financial  part  of  the  economy  and  on  the 
overall growth  and  employment  performance of their economies. The expected reduction in 
(virtual)  liquidity  triggered  by  the  crowding  out  of  certain  business  models  (such  as  high 
frequency  trading)  or  the  discouragement  of  "internalisation"  by  market  makers  and  broker 
dealers and the subsequent decline in market turnovers was seen as very problematic by these 
opponents of an FTT. 

Some also considered action at the European level not being necessary at all and had a strong 
preference  for  co-ordinated  or  un-coordinated  action  at  the  national  level  by  those  that 
considered  action  necessary  in  first  place,  while  other  sceptical  Member  States  might  have 
accepted a common system of an FTT that would have been much narrower in scope and less 
ambitious in objectives. 

As  in  the  light  of  this  very  strict  resistance  by  some  Member  States  to  the  concept  of  tax 
harmonisation  in  this  field  at  all  the  required  unanimity  in  the  Council  was  not  reached  in 
favour of the Commission's proposal for a Council Directive on a common system of FTT or 
for  a  variant  thereof,  the  file  was  blocked  at  the  level  of  the  European  Union  for  all  27 
Member States. 

In these circumstances, eleven Member States indicated that they wish to establish enhanced 
cooperation between themselves in the area of the establishment of a common system of FTT. 
This system should be based on the objectives and scope of the Commission's initial proposal. 
Moreover,  special  emphasis  should  be  given  to  avoiding  evasive  actions,  distortions  and 
transfers to other jurisdictions. 

3.2  EU right to act and subsidiarity 

The right for the EU to act in relation to taxes on financial transactions is based on Article 113 
of the Treaty on the Functioning of the European Union TFEU). The main rationale for EU 
action  is  that  the  functioning  of  the  Internal  Market  would  be  hampered  if  Member  States 

9 

 
 
 
decided  to  act  unilaterally  in  this  field.  Ten  Member  States  have  introduced  taxes  on 
transactions  in  financial  instruments;  others  are  preparing  the  introduction  of  such  taxes.13 
This  uncoordinated  approach  fragments  the  EU  financial  market,  distorts  competition  and 
increases the risk of relocation of financial activities both within and outside the EU. It also 
increases  the  risk  that  the  financial  sector  becomes  subject  to  double  taxation  or 
(unintentional) non taxation. 

While neither the first-best solution to this problem (the introduction of a common system of 
financial  transaction  tax  at  the  global  level)  nor  the  second-best  solution  (introducing  this 
system at the level of EU27) had a chance of being achieved in a reasonable period of time 
the Commission received by 23 October 2012 the formal request by eleven Member States to 
launch the necessary steps for establishing the third-best solution (introducing this system at 
the level of enhanced cooperation zone referred to hereinafter as EU11+)14. According to the 
Commission's findings15 these requests fulfil the legal preconditions as laid down in the EU 
treaties: 
•  Harmonisation of indirect taxation is an area covered by the Treaty which does not belong 
to the exclusive competences of the Union. And following an intensive discussion in the 
Council, it is clear that enhanced cooperation is a last resort solution to progress on this 
file; 

•  Harmonising  a  patchwork  of  different  national  taxes  will  not  undermine  the  internal 
market.  On  the  contrary,  it  will  strengthen  it  by  creating  more  coherence  in  the  FTT 
jurisdiction  and  less  administrative  burden  for  business  in  EU11+  and  beyond.  Nor  will 
this procedure undermine the single market or economic,  social and territorial cohesion. 
Neither will it constitute a barrier to trade between Member States or distort competition 
between them; 

•  And  finally,  the  procedure  respects  the  rights,  competences  and  obligations  of  non-
participating Member States. They remain free to define and modify their own approach 
to financial sector taxation any time they want to without being hampered by the enhanced 
cooperation  of  those  Member  States  that  have  chosen  to  go  ahead  on  the  basis  of  the 
objectives and scope of the Commission proposal of 28 September 2011. 

Introducing a financial transaction tax at the level of individual Member States alone will not 
be  successful  in  fully  achieving  the  key  objectives  of  such  a  tax.  Neither  will  it  ensure  the 
proper functioning of the internal market and avoid distortion of competition, nor will it raise 
a fair and substantive contribution from the financial sector for covering the costs of the crisis. 

It  must  be  concluded  that  EU  action  through  the  procedure  of  enhanced  cooperation  would 
respect  the  subsidiarity  principle  since  the  policy  objectives  cannot  be  sufficiently  achieved 
by actions of the Member States, and can be better achieved through coordinated action in the 
context of the Treaties of the European Union.  

13 See Annex 1 for more details. 
14  Article  20  TEU  stipulates  that  at  least  nine  Member  States  must  participate  in  a  procedure  of  enhanced 
cooperation. In this document, the terms "EU11+", "EU11", "enhanced cooperation zone" and "FTT jurisdiction" 
are all used when referring to the group of Member States that participate in enhanced cooperation on FTT. 
15 COM(2012) 631. 

10 

 
 
                                                            
4.  OBJECTIVES 
The initial proposal tabled by the Commission in September 2011 aimed at: 
•  Harmonising  legislation  concerning  indirect  taxation  on  financial  transactions,  which  is 
needed to ensure the proper functioning of the internal market for transactions in financial 
instruments  and  to  avoid  distortion  of  competition  between  financial  instruments,  actors 
and markets across the European Union, and at the same time 

•  Ensuring that financial institutions make a fair and substantial contribution to covering the 
costs  of  the  recent  crisis  and  creating  a  level  playing  field  with  other  sectors  from  a 
taxation point of view16, and  

•  Creating  appropriate  disincentives  for  transactions  that  do  not  enhance  the  efficiency  or 
stability of financial markets thereby complementing regulatory measures to avoid future 
crises17. 

Another aim had been to show to the rest of the world that such a tax could - against all odds - 
also  work  at  the  regional  level  and,  thus,  constitute  a  first  tangible  step  towards  a  global 
solution. 

Member  States  having  requested  receiving  the  authorisation  for  engaging  in  enhanced 
cooperation  among  themselves  specified  that  this  cooperation  should  be  based  on  the 
objectives of this initial proposal. 

From  these  general  objectives  of  the  initial  proposal  and  from  the  context  they  were 
developed  in,  i.e.  FTT  at  the  regional  level  instead  of  the  global  level  one  can  derive  five 
principles with which the envisaged enhanced cooperation should stay in line: 
•  The common system should be designed in a way that there are no (significant) incidents 
of double taxation or unwarranted double non-taxation within the FTT jurisdiction. This 
would  require  that  there  should  be  no  other  (un-coordinated)  national  taxes  levied  on 
financial transaction covered by the FTT directive within the enhanced cooperation zone. 
•  The tax revenues collected should constitute a fair and substantial contribution from the 
financial sector for covering the cost of the financial crisis. Given that these costs (costs 
for public finances plus costs of economic losses triggered by the subsequent recession) 
are estimated to be in the order of magnitude of at least about 15% to 20% of the GDP of 
the  EU  (FTT  jurisdiction)18,  the  annual  revenues  raised  should  be  in  the  order  of 
magnitude of at least 0.3% to 0.5% of the GDP of the EU (FTT jurisdiction). 

•  The common system should not trigger a (significant) tax-induced geographical relocation 
of  financial  activity,  neither  within  the  FTT  jurisdiction  itself  nor  at  the  expense  of  the 
financial  centres  of  the  FTT  jurisdiction.  Actually,  participating  Member  States  in  their 

16  Some  financial  institutions,  either  directly  or  indirectly,  largely  benefited  from  the  massive  rescue  and 
guarantee operations (pre)financed by the European taxpayer in the course of 2008 to 2012. These operations, 
together  with  the  faltering  of  economic  activity  caused  by  the  spread  of  uncertainty  about  the  stability  of  the 
overall economic and financial system have triggered a significant deterioration in the public finance balances in 
many Member States. Also, most financial and insurance services are exempted from VAT. 
17  These  disincentives  through  taxing  certain  activities  and  transactions  are  intended  to  reinforce  the 
effectiveness  of  regulatory  initiatives  presently  under  preparation  or  having  recently  been  implemented  (see 
footnote 12). For the FTT initiative exercising such disincentives has more the character of welcome side effects.  
18 See also SEC(2011)1102. 

11 

 
 
 
                                                            
request  specified  that  evasive  actions,  distortions  and  transfers  to  other  jurisdictions 
should be minimized. This would require that all financial transactions that aim at serving 
the economy of the FTT jurisdiction should be taxed in case they 

o 

involve  or  serve  the  needs  of  financial  institutions  or  other  undertakings 
established in the FTT jurisdiction; 
involve instruments issued in the FTT jurisdictions, or  

o 
o  are taking place in the FTT jurisdiction. 

For further dealing with the imminent risk of tax evasion and avoidance, especially in this 
very  creative  and  mobile  markets  and  actors,  the  principle  of  "substance  over  form" 
should apply in this context so as to minimize incentives for entering into legal constructs 
that  aim  at  avoiding  the  tax  without  also  changing  the  substance  of  the  transactions  in 
financial instruments undertaken.  

•  All financial instruments, actors and markets within the FTT jurisdiction should be treated 
similarly so as to avoid (significant) tax-induced distortion of competition or (significant) 
tax-induced substitution activities, such as shifting from taxed products or markets to non-
taxed ones. This would require a non-preferential treatment of products, actors or markets, 
i.e. no exemptions for some products, actors or markets from being taxed19. 

•  Pure rent-seeking financial intermediation, excessive risk taking and leveraging and that 
do not improve the efficiency or stability of financial markets should be discouraged20. 

The  Commission  had  proposed  that  these  principles  and  this  scope  of  the  FTT  directive 
(notably the coverage of all actors, all markets and all products) should be implemented at the 
same time ("big bang") so as to achieve the commonly agreed objectives as soon as possible 
and  so  as  to  avoid  substantive  evasive  action  and  distortion  amongst  actors,  markets  and 
products. 

19 However, this tax neutrality would not automatically mean that the effect of the tax on all market segments 
was aimed at being similar. Instead, due to the design of the tax it should be expected that certain transactions 
and business models, notably those undertaken at a very high frequency and building on very tiny margins or 
those characterised by a high leverage between the amount of the capital invested and the notional value of the 
underlying would be discouraged. This effect is actually warranted. 
20 See also SEC(2011)1102. 

12 

 
 
                                                            
5.  POLICY OPTIONS 
The baseline scenario against which alternative policy options are to be benchmarked should 
be a situation where no agreement on a common system of FTT can be found, neither at the 
level of EU27 nor at the level of EU11+.  

This baseline scenario is characterised by a variety of un-coordinated national regimes under 
constant  change  (as some Member States decided to change their systems or introduce  new 
forms of FTT)21, characterised in general by: 
•  The scope of the tax in most countries is rather narrow and generally covers the trading in 
securities  (especially  shares)  on  regulated  markets  only,  with  little  or  no  taxation  of 
derivatives22 or over-the-counter transactions; 

•  Significant substitution of financial instruments, in order to avoid taxation; 
•  Specific  exemptions  of  instruments  and  actors  (e.g.  for  derivatives,  shares/units  of 

UCITS, market makers23, broker-dealers etc.); 

•  The  collection  of  the  tax  is  usually  done  through  intermediaries/brokers  and  the  tax  is 

typically not levied on both ends of the financial transaction. 

In  consequence,  these  taxes  would  generate  rather  little  revenue.  For  example,  the  tax 
introduced by France in August 2012 is expected to generate about EUR 1.1 bn. or 0.06% of 
GDP annually. Assuming that the other participating Member States had introduced a similar 
tax on their territory, the annual aggregate revenue would amount to around EUR 4 to 5 bn. 
(0.06%  of  EU11+  GDP).  This  is  far  below  what  one  would  characterise  as  a  "fair  and 
substantial contribution" from the financial sector.  

Moreover, the tax systems in place and under consideration in several Member States violate 
a basic principle of taxation that primarily aims at neutral revenue-raising, i.e. to treat similar 
events (actors, instruments, market places) in a similar way. This, in turn, triggers a distortion 
in competition both within individual Member States and within the Single Market. 

So as to overcome these shortcomings of the baseline, different alternatives for action could 
have been envisaged: 
•  Option A: an FTT at the global level, 
•  Option B: an FTT at the level of EU27 
•  Option C: an FTT at the level of EU11+ through enhanced cooperation, 
•  Option D: an FTT co-ordinated outside the framework of the EU treaties. 

However, option A had already been discarded at the time of tabling the initial proposal as – 
besides  some  lip-services  and  analyses  undertaken  in  the  run-up  and  as  a  follow-up  to  G20 
meetings,  there  was  no  momentum  at  all  visible  that  could  have  been  interpreted  as  giving 

21 In the enhanced cooperation zone, three Member States have different forms of FTT in place, while at least 
three others are planning to introduce their own national schemes in the near future. 
22 The French system introduced as of 1 August 2012 specifically taxes also credit default swaps on sovereign 
government debt instruments. See Annex 1 for more details. 
23According  to  Art.  4.1  of  MIFID,  a  'market  maker'  means  a  person  who  holds  himself  out  on  the  financial 
markets  on  a  continuous  basis  as  being  willing  to  deal  on  own  account  by  buying  and  selling  financial 
instruments against his proprietary capital at prices defined by him.  

13 

 
 
 
                                                            
impetus to such an initiative. Also, by now and at latest in the aftermath of the Ecofin Council 
meetings of 22 June and 10 July 2012 in Luxemburg, option B has also to be discarded. It has 
become clear, and it was officially concluded at the meeting of 10 July 2012 by the (Cypriot) 
Presidency that no progress would be possible at the level of EU27 in the area of a common 
system of FTT. 

Option  D,  in  order  to  be  meaningfully  pursued,  would  require  a  critical  mass  of  Member 
States  (representing  both  economic  weight  and  size  of  financial  markets)  to  engage  in 
developing  a  common  system  of  taxing  the  financial  sector.  However,  none  of  the  Member 
States wanting to go ahead with a broad-based FTT was showing interest in such an approach 
outside  the  framework  of  the  Treaties.  Instead,  they  opted  for  officially  requesting  to  be 
allowed  to  make  use  of  the  Treaty  provisions  for  enhanced  cooperation  in  the  area  of  a 
common  system  of  FTT,  and  based  on  the  scope  and  objectives  of  the  proposal  tabled  in 
September 2011. 

Thus,  only  option  C,  i.e.  establishing  a  common  system  of  FTT  under  the  procedure  of 
enhanced  cooperation  can  presently  be  assumed  to  have  the  potential  of  achieving  the 
objectives  outlined  in  chapter  4.  In  consequence,  this  paper  analyses  policy  options  and  the 
impacts of a common system of taxation to be implemented in the enhanced cooperation zone 
that is based on the scope of the proposal already tabled in September 2011, composed of the 
following features: 

•  All financial instruments (shares, government bonds, derivatives, structured products etc.) 
as  defined  in  Annex  I,  Section  C  of  the  Markets  in  Financial  Instruments  Directive 
(MiFID)24,  all  financial  institutions  (including  also  other  undertakings  with  significant 
trading  in  financial  instruments)  and  all  markets  (organised  and  non-organised  markets) 
are taxed; 

•  Taxation  is  based  on  strong  anti-relocation  mechanisms,  such  as  a  broadly-defined 
residence  principle.  Under  this  principle,  it  matters  who  is  interacting  with  whom, 
independent  of  whether  the  place  of  transaction  is  within  or  outside  the  territory  of  the 
FTT  jurisdiction,  and  independent  of  whether  the  instrument  has  been  issued  within  or 
outside the FTT jurisdiction, for as long as one of the financial institutions involved in the 
transaction  is  deemed  to  be  established  in  the  FTT  jurisdiction.  Moreover,  as  this 
residence principle is defined in a rather broad manner, it also means that all transactions 
taking place in the FTT jurisdiction are to be taxed as well; 

•  The tax rates are rather low (0.1% of the consideration paid for trading in securities and 
0.01% of the notional value of the underlying for derivatives), and the tax has to be paid 
immediately (so as to minimize cash-flow advantages for the taxable persons - and cash-
flow  disadvantages  for  the  tax  authorities).  The  revenues  accrue  to  the  Member  States 
where the taxable financial institution is deemed to be established; 

•  The tax is to be paid at both ends of the transaction for as long as a financial institution is 
involved at the respective end. Joint and several liability is foreseen so as to improve tax 
compliance.25  The  actual  enforcement  of  taxation  is  largely  left  to  the  discretion  of 
Member States. 

24 Directive 2004/39/EC of the European Parliament and the Council, OJ L 145, 30.4.2004, p. 1. 
25 While the construct of "joint and several liability" might theoretically be a source of some counterparty risk, 
this risk would be manageable as the reputation of the counterparty (reliable versus unreliable taxpayer) would 

14 

 
 
                                                            
 
Alternative  policy  options  could  be  based  on  variations  of  the  above  parameters,  e.g.  they 
could aim at a narrower base by exempting certain products, actors or markets, or by going 
for  an  alternative  principle  of  taxation,  e.g.  based  on  the  issuance  or  on  the  place  of 
transaction principle instead of the residence principle, they could aim at taxing only one leg 
of the transaction or envisage more differentiated tax rates. 

In  the  political  discussion  and  in  the  discussions  in  the  Council  Working  Party,  all  these 
variants  have  been  raised  and  discussed,  with  a  special  emphasis  on  the  following  policy 
options: 
•  Exempting  certain  products,  notably  government  bonds,  the  issue  (and  redemption)  of 
shares  and  units  of  undertakings  for  collective  investments  in  transferable  securities 
(UCITS)  and  alternative  investment  funds  (AIF),  repurchase  and  reverse  repurchase 
agreements, and derivatives agreements; 

•  Exempting  certain  actors,  notably  regional  and  multilateral  development  banks,  public 
bodies  of  Member  States  charged  with  or  intervening  in  the  management  of  the  public 
debt, market makers and broker-dealers, and fully funded pension funds or institutions for 
occupational retirement provisions (pillar II and pillar III pension funds); 

•  Complementing or replacing the proposed residence principle by the issuance principle or 

elements thereof; 

•  Changing  the  order  of  criteria  determining  the  Member  State  in  which  a  financial 
institution is deemed to be established and, thus, to which Member State the tax revenues 
would eventually accrue; 

•  Phasing in the FTT by initially starting with a narrower scope. 

be factored into the conditions of the contracts in case of certain over-the-counter transactions, while in the case 
of  using  trading  platforms  or  clearing  houses  these  latter  might  be  used  to  collect  and  pay  the  tax  to  the  tax 
authorities and, thus, minimize this counterparty risk.  

15 

 
 
                                                                                                                                                                                          
6.  ANALYSING THE IMPACTS OF DIFFERENT POLICY 
OPTIONS FOR A COMMON SYSTEM OF FTT UNDER 
ENHANCED COOPERATION 

The  first  starting  point  for  analysing  different  options  for  taxing  financial  transactions  and 
their  effects  should  be  the  impact  assessment  accompanying  the  initial  proposal  and 
complemented  by 
the 
Commission26, as the scope and objectives of the FTT initiative foreseen under the procedure 
of enhanced cooperation should be based on the scope and objectives of this initial proposal. 

the  additional  analysis  undertaken  and  published  since  by 

In a nutshell, this analysis found – as compared to the baseline scenario of no action at the EU 
level - very positive impacts on the functioning of the single market for financial instruments, 
namely the non-occurrence of any kind of double taxation or unintended double non-taxation, 
as well as very positive effects on public finances (additional annual revenue in the order of 
0.5%  of  GDP).  It  was  also  found  that  the  FTT  system  would  trigger  some  rolling  back  of 
business  models  in  financial  markets  that  were  mainly  aiming  at  redistributing  wealth  and 
rents, even at the price of higher risk exposure, instead of creating wealth and values. Also, 
thanks  to  its  powerful  ring-fencing  provisions  (non-taxation  of  ordinary  bank  transactions 
such as providing capital to enterprises and private households), negative knock-on effects of 
the  tax  on  the  real  economy  could  be  largely  avoided,  the  risk  of  geographical  relocation 
could be minimized, while at the same time the proposed tax system was characterised by a 
high degree of tax neutrality across instruments, market places and actors within the financial 
sector. 

6.1  The Commission proposal under enhanced cooperation (Option C)    

The analysis referred to so far was based on a proposal for a common system of FTT for the 
entire  EU  (EU27)  and  not  for  a  subset  of  Member  States.  Thus,  in  a  first  step,  this  initial 
analysis undertaken for a common system of FTT at the level of EU27 (option B) would need 
to  be  adjusted  to  take  account  of  this  narrower  FTT  jurisdiction  (Option  C),  and  changing 
outcomes  would  need  to  be  highlighted.  Three  elements  deserve  special  attention  in  this 
context: would EU11 instead of EU27 trigger different single-market effects (such as double 
taxation)?  Would  it  result  in  different  market  reactions  (such  as  turnover  volumes, 
geographical relocation or additional substitution effects)? And finally:  What  is  the  revenue 
potential for a much smaller FTT jurisdiction? 

6.1.1  The single market dimension (double taxation and double non-taxation) 

It  belongs  to  the  nature  of  a  process  of  enhanced  cooperation  in  the  field  of  taxation  that  it 
cannot succeed in avoiding all occurrences of double taxation within the European Union for 
as long as not all Member States of the European Union participate in this cooperation. This 
holds the more as all non-participating Member States have the freedom to change at any time 
and  in  any  direction  the  way  how  they  tax  financial  institutions  and  financial  transactions 

26  See  http://ec.europa.eu/taxation_customs  for  links  to  the  initial  impact  assessment,  its  summary  and  all  its 
annexes as well as links to the additional analysis carried out by the Commission since September 2011. 

16 

 
 
 
 
                                                            
(including not taxing them at all) for as long as the tax regime chosen complies with the body 
of EU legislation and with international law. 

Thus,  while  the  initial  proposal  of  the  European  Commission,  if  applied  in  all  27  Member 
States of the European Union would have succeeded in eliminating and avoiding any kind of 
double  taxation  of  financial  transactions  and  of  a  fragmentation  of  the  Single  Market  with 
respect  to  taxation,  the  enhanced  cooperation  of  the  EU11+  group  of  Member  States  can 
achieve  this  in  the  FTT  jurisdiction  only.  Thus,  instead  of  9+  systems  of  taxing  financial 
transactions  within  the  FTT  jurisdiction  there  will  be  only  a  single  system  in  place.  This 
should avoid any kind of distortion of competition within the FTT jurisdiction. 

Also, risks of delocalisation of taxed activities within the FTT jurisdiction could be assumed 
to  remain  rather  limited27  for  as  long  as  the  directive  will  be  transposed,  implemented  and 
enforced in a similar way in all participating Member States and for as long as differences in 
actual  tax  rates  (the  directive  proposes  minimum  rates  only)  do  not  invite  for  tax  planning 
triggering a relocation of activities. Actually, such residual risks could only be avoided in the 
context  of  a  proposal  for  a  regulation  instead  of  a  directive,  and  prescribing  standard  rates 
instead of minimum rates. 

As regards remaining potential occurrences of double taxation between the FTT jurisdiction 
on  the  one  side  and  non-participating  Member  States  on  the  other  side,  this  might  be  most 
evident with respect to those Member States that host very important financial centres and a 
relatively large financial industry. Non-participating Member States, such as Cyprus, Finland, 
Ireland,  Luxemburg,  Malta,  Poland  and  the  UK,  have  in  place  their  own  national  taxes  on 
financial transactions. However, these countries only apply rather narrowly defined taxes on 
securities  transactions,  with  generously  defined  exemptions  or  exclusions  from  the  scope  of 
the tax for financial intermediaries. 

Thus,  some  financial  institutions  (deemed  to  be)  established  in  the  FTT  jurisdiction  might 
have to pay both the FTT and tax in some of these non-participating Member States for the 
same financial transactions.28 

However, these potential occurrences of double taxation should constitute only a tiny fraction 
of transactions for which the common system of FTT is designed, and this only in case these 
taxing  but  non-participating  Member  States  were  not  to  join  the  FTT  jurisdiction  at  a  later 
stage. A "second-best" possible solution (next to enlarging the EU11+ to EU27) for dealing 
with  such  remaining  occurrences  of  double  taxation  would  be  the  use  of  the  instrument  of 
bilateral double-taxation agreements. 

27 However, see also section 6.4.4 for a more nuanced analysis of this. 
28 It is difficult to quantify the potential double taxation for example in the of the interaction with the UK system 
as  no  information  is  available  on  how  much  of  the  revenue  from  the  UK  Stamp  Duty  (SD)  and  Stamp  Duty 
Reserve  Tax  (SDRT)  is  actually  paid  by  financial  institutions  of  the  FTT  jurisdiction.  There  are  some 
estimations  (Griffith-Jones  2012)  indicating  that  about  40%  of  the  SD  and  SDRT  are  actually  paid  by  non-
residents  (to  the  UK).  If  about  one  quarter  of  these  non-residents  were  financial  institutions  of  one  of  the 
participating Member States, and assuming that the Member States of the FTT jurisdiction applied the minimum 
tax rate of 0.1% (as compared to 0.5% in the UK), then this occurrence of double taxation could be in the order 
of magnitude of about EUR 80 mn. (EUR 3.98 bn. * 40% * 25% * 20%) annually. 

17 

 
 
 
                                                            
6.1.2  Market reactions (turnover, relocation, substitution) 

to 

they  are 

jurisdictions  where 

The  application  of  an  FTT  bears  the  intrinsic  risk  of  agents  "relocating"  their  activities  to 
reduce the fiscal burden, independent of whether the jurisdiction applying this tax comprises 
the entire European Union or only parts of it. "Relocation" might take place by (i) moving the 
relevant  activities 
to 
products/suppliers outside the scope of taxation within the same jurisdiction e.g. by changing 
the  business  model  or  contract  design,  or  (iii) abandoning  the taxable  activity  altogether. In 
principle, this latter might even lead some products/markets to disappear in the medium and 
longer  run,  however,  without  necessarily  undermining  the  efficiency  of  the  market  itself. 
Obviously,  the  risk  of  both  physical  relocation  of  markets/market  players  and  migration  to 
non-taxed  products  decreases  the  broader  the  geographic  coverage  of  the  taxes  is  and  the 
broader  their  scope.  Thus,  the  risk  of  geographical  relocation  might  at  first  glance  be 
somewhat  higher  for  an  FTT  introduced  at  EU11+  instead  of  EU27,  as  the  geographical 
coverage of its application is narrower. 

less,  (ii)  by  shifting 

taxed 

However,  it  would  eventually  be  the  concrete  design  of  a  tax  in  combination  with  the 
presence  or  absence  of  transaction  costs  of  relocation  (i.e.  the  availability  or  not  of  cheap 
substitution possibilities) that will largely impact on the actual extent of relocation. The cases 
of Sweden and the UK, which both introduced a tax on financial transactions at national level 
but with different relocation effects, provide some evidence for this. 

Also the responsiveness of traded volumes  to taxes (and transaction costs in general) varies 
across products and markets, as it is heavily influenced by available substitution possibilities 
and the characteristics of the relevant trading platforms. Thus, the design of the tax will be as 
important as its rate or change in the rate. 

The risks of geographical relocation, as well as those arising from potential migration towards 
untaxed substitute products, could be minimised by (i) not taxing certain activities at all (not 
really  an  option  if  one  wanted  to  treat  similar  products  similarly),  by  (ii)  extending  the 
geographical coverage of the tax and by (iii) including a wide range of financial products and 
markets  (exchange  and  over-the-counter)  in  its  scope.  It  can  also  be  reduced  by  linking  the 
FTT with some form of registration. Clearly, coordination in terms of products covered by the 
tax as well as of applicable tax rates is a prerequisite for lowering the incentives to relocation 
across jurisdictions. 

Geographical relocation 

So as to effectively avoid having to pay FTT it would not suffice that a financial institution 
simply moves its seat outside the FTT jurisdiction. This is, because for as long as a financial 
institution intends to either undertake transactions in the FTT jurisdiction or to serve a client 
base  of  the  FTT  jurisdiction  it  would  be  deemed  to  be  established  in  the  territory  of  a 
participating Member State (Article 3.1 of the initial FTT proposal – Article 4.1 of the new 
proposal).  Thus,  a  financial  institution  would  have  to  both  abandon  to  trade  on  trading 
platforms in the FTT jurisdiction (this would also hold for the remote access to such trading 
platforms  from  outside  the  FTT  jurisdiction)  and  to  abandon  all  its  clients  in  participating 
Member States if it wanted to avoid paying the tax. 

18 

 
 
 
 
Example1: 

Client base 

An American bank sells a derivative via an UK investment bank on a French trading platform 
to a German regional authority. The UK investment bank acts for the account of the German 
regional authority. 

•  FTT  is  due  twice  in  Germany  at  the  German  rate  as  both  banks  are  deemed  to  be 

established in Germany. 

• 

If  the  notional  value  of  this  derivative  was  EUR  10  mn.  and  Germany  applied  the 
minimum rate of 0.01% each financial institution would have to pay EUR 1.000. 

Example 2: 

A  French  company  asks  a  German  bank  which  asks  its  American-based  Investment  Bank 
subsidiary  (AS)  to  hedge  a  currency  risk  in  the  name  of  its  parent  company  but  for  the 
account  of  the  French  company.  For  this,  the  American  subsidiary  (AS)  enters  into  a 
derivative  agreement  in  the  name  and  for  the  account  of  the  German  bank  with  another 
American bank (AB) having no link to the territory of a Member State. 

•  FTT is due twice in Germany at the German rate as for this transaction the AS is deemed 
to be established in Germany and for this transaction the second American bank (AB) is 
equally deemed to be established in Germany. But as the AS was acting in the name of the 
German bank the tax would have to be paid by the German bank. 

• 

If the notional value of this derivative agreement was EUR 10 mn. and Germany applied 
the minimum rate of 0.01% the German bank itself and the American bank (AB) would 
each have to pay EUR 1.000. 

This  very  broadly  defined  residence  principle  distinguishes  the  actual  design  of  the  FTT  as 
initially proposed by the Commission from the design typically analysed in studies preceding 
the Commission proposal, and highlighting the relocation risk in case an FTT was introduced 
at a sub-global level. 

Thus, the risk of geographical relocation remains rather limited for both relocation to non-EU 
jurisdictions  and  relocation  to  non-participating  Member  States.  So  do  the  benefits  of 
relocation. Also, there is no obvious mechanism that would invite for the conclusion that the 
risk of relocation to financial centres of non-participating Member States of the EU is higher 
than the risk of relocating to financial centres of non-EU countries, such as Switzerland, the 
USA or other well-established financial centres in the world.29  

Substitution and changing business models 

The  Commission  proposal  is  characterised  by  a  very  broad  definition  of  transactions, 
instruments and institutions, as defined in Article 2 of the proposal of September 2011. This 

29 However, see section 6.4.4 for a potential exception to this rule. 

19 

 
 
 
                                                            
approach  to  cover  all  markets  (organised  and  non-organised),  all  actors  (from  traditional 
financial  institutions  to  big  non-financial  companies  that  undertake  significant  trading  in 
financial  instruments)  and  all  products  (shares,  bonds,  bills,  derivatives,  structured  products 
etc.) was inspired by the invariable strive of market participants to minimize their tax burden 
and engage in economic activities that are either not taxed or less taxed. By the same token, it 
was also inspired by the need for preserving "tax neutrality" and not to discriminate against or 
to privilege certain actors, markets or products. 

A significant share of the market reactions triggered by the introduction of this tax is assumed 
to be the result of actors replacing taxable events with (new) un-taxed business models, and 
deleveraging transactions. For example, the traditional way of brokering (where brokers buy 
and  sell  in  the  name  or  on  account  of  other  financial  institutions)  might  replace  the  current 
practice  of  broker-dealers  trade  in  their  own  name  and  on  their  own  account  as  this  would 
relieve  them  from  paying  the  tax  (see  Art.  9.2  of  the  initial  proposal30).  However,  as  this 
change  of  business  models  would  deprive  the  broker-dealers,  market-makers  and  high-
frequency traders of some rents (the so-called "internalised" ) they might only abandon this 
business  model  for  those  transactions  where  these  "internalised"  spreads  allowed  by  the 
market would be smaller than the tax they would have to pay. 

In  the  present  business  model  of  transaction  chains  being  dominated  by  such  "market-
making" and "internalisation" proprietary trading by all actors, each transaction shows up (in 
the statistics of market turnover) as a buying and selling transaction, i.e. a single purchase/sale 
operation  triggered  from  outside  the  financial  sector  might  (statistically)  show  up  as  two, 
three  or  even  four  trades  at  each  side  of  the  transaction.  Once  such  proprietary  trading  will 
turn into taxable events the trading might – depending on the size of the internalized spread - 
be  replaced  by  "intermediation".  So,  while  "trading"  turnovers  will  decline,  the  initiating 
underlying economic substance (one actor wants to buy and get ownership of a product and 
one other wants to sell and dispose of this ownership) remains unchanged, and the potential 
cascading effect of the tax within a single transaction chain can be avoided. 

Brokerage and market-making services – the "internalisation" of spreads 

Example 1: 

A Belgian and a French private household use respectively their Belgian and French  retail 
banks and order them to buy/sell on the Paris stock exchange, in the name or for the account 
of  the  respective  households,  shares  of  a  French  joint-stock  company  in  the  value  of  EUR 
10.000.  The  retail  banks  pass  on  these  orders  to  their  wholesale  banks  and  those  to  their 
brokers on the Paris stock exchange. All three intermediate only, without buying or selling for 
their own account. 

•  Both retail banks are liable to pay the FTT due in their country of establishment (Belgium 
and  France  respectively).  Neither  the  wholesale  banks  nor  the  brokers  are  liable  to  pay 
FTT. 

30  Art.  9.2  of  the  initial  proposal  read:  "Where  a  financial  institution  acts  in  the  name  or  for  the  account  of 
another financial institution only that other financial institution shall be liable to pay FTT." 

20 

 
 
 
                                                            
•  The  retail  banks  would  have  to  pay  EUR  10  each  for  this  transaction  in  France  and 
Belgium respectively. The  effective tax to be paid by all actors in the whole transaction 
chain corresponds to 0.2% of the economic value of the transaction. 

Example 2: 

Same case as example 1, but, this time, the shares are passed on through five successive sales 
and purchase ("internalisation" of spreads): Apart from the two retail banks, who act in the 
name or for the account of the respective households, all other participants act in their own 
name and for their own account as well. 

•  All six financial institutions are liable to pay FTT in France and in Belgium respectively. 
Both brokers and both wholesale banks have to pay FTT twice, while the retail banks have 
to pay only once. 

•  The  brokers  and  wholesale  banks  would  each  have  to  pay  EUR  20  and  the  retail  banks 
each  EUR  10.  The  effective  tax  to  be  paid  by  all  actors  in  the  whole  transaction  chain 
would correspond to 1.0% of the economic value of the transaction. 

It  is  assumed  that  financial  institutions  will  not  ignore  the  tax  when  developing  and 
implementing  their  business  strategies.  However,  this  should  not  be  confused  with  less 
efficient markets or an unwarranted squeeze in liquidity in affected markets. 

In this economic analysis it is also assumed that the reduction in market volumes is partly the 
result of the rolling back of certain high frequency but low-margin transactions which would 
no  longer  be  attractive  for  the  transaction  partners  once  a  tax  of  0.1%  or  0.01%  is  levied. 
Thus, it is assumed that in some market segments the tax will create a structural break in the 
sense that business models change (e.g. in the field of automated High Frequency Trading and 
high-frequency  δ-hedging)  which  leads  to  fewer  transactions  and  potentially  other  ways  of 
trading assets and shifting risks. 

6.1.3  Revenue estimations 

When presenting and reading revenue estimations for taxes which would be newly introduced 
or where the tax base is substantially broadened or changed and that – on top of this – have to 
a certain extent the goal to change market behaviour and market structure bears a high degree 
of  uncertainty.  For  the  initial  proposal  of  the  draft  directive,  and  at  a  tax  rate  of  0.1%  for 
securities and of 0.01% of the notional value for derivatives agreements and payable by each 
side  of  a  transaction,  the  revenue  estimates  for  the  tax  about  EUR  57  bn.  annually  for  the 
entire European Union, with about EUR 19.4 bn. stemming from the taxation of transactions 
in securities and about EUR 37.7 bn. stemming from the taxation of derivatives31. 

These  estimations  took  as  a  starting  point  a  bottom-up  approach  based  on  the  "place  of 
transaction" principle, by looking at the cumulated turnover in (taxable) financial transactions 
in all Member States of the European Union. Such an approach would only reflect to match 
the proposed tax design in case all transactions in Europe were actually transactions between 
European financial institutions, or where at least one party to the transaction was a financial 

31  See  SEC(2011)1102,  and  the  additional  analysis  published  on  the  FTT-dedicated  page  of  the  European 
Commission. 

21 

 
 
                                                            
institution deemed to be established in the EU. However, this assumption is not expected to 
hold, mainly for two reasons: 
•  Under the proposal for EU27 it was foreseen that also transactions carried out outside the 
EU  should  be  taxed  for  as  long  as  one  of  the  parties  or  one  of  the  financial  institutions 
involved  is  deemed  to  be  established  in  the  EU.  Thus,  an  estimation  only  taking  into 
account  transactions  carried  out  within  the  EU  would  tend  to  underestimate  potential 
revenues of the proposed FTT. 

•  On the other hand, there is also a part of the turnover in financial instruments in Europe 
where a European party is acting in the name or for the account of a non-European party. 
An estimation also taking into account these transactions would tend to overestimate the 
revenue  potential  of  the  proposed  FTT  having  in  mind  the  exemption  in  Art.  9.2  of  the 
original Commission proposal. 

As  both  effects  tend  to  work  in  opposite  directions,  it  could  be  reasonably  assumed  that 
revenue  estimations  at  the  aggregate  level  taking  the  cumulative  turnover  at  the  place  of 
transaction in all Member States could serve as a proper proxy for the potential revenue at the 
aggregate level of the FT proposed. 

What might still work at the aggregate level will, nevertheless, be less and less acceptable as a 
proxy the more one disaggregates, as cross-border transactions are becoming more and more 
important. Instead, one would first have to identify the financial institution that is the person 
liable  to  pay  the  tax,  for  instance,  with  the  help  of  the  Markets  in  Financial  Instruments 
Directive (MiFID)32 and the European Markets Infrastructure Regulation (EMIR)33. Then, due 
account would have to be taken of the provisions of "establishment" of the proposal as well as 
of the provision according to which in cases "where a financial institution acts in the name or 
for  the  account  of  another  financial  institution  only  that  other  financial  institution  shall  be 
liable to pay the tax." Such comprehensive data mining and analysis was not possible as most 
of the data needed for this are not yet public. 

Also,  such  an  approach  would  not  have  resulted  in  an  accurate  reflection  of  the  market 
structures and involvement of participants once the tax will have been introduced, as it would 
not  have  been  possible  to  assign  to  individual  actors  the  potential  market  reactions, 
behavioural changes and changing business models expected to be triggered by the levying of 
the  tax.  As  these  market  reactions  were  assumed  to  be  rather  significant  (minus  15%  the 
trading in securities and minus 75% for the derivatives markets, such dynamic developments 
would to a certain extent substantially alter the results of the ex-ante data mining, and could 
not have been ignored when estimating the regional incidence of the tax. 

When adjusting the revenue estimations to the new FTT jurisdiction comprising 11 countries 
one  has,  once  again,  to  work  with  proxies.  In  the  light  of  the  methodological  difficulties 
proxies  could  be  used  that  correlate  the  volume  of  taxable  transactions  with  different 
parameters, such as: 
• 

the size of the economies of the FTT jurisdiction, measured by the GDP of the economy 
(either in current prices terms or expressed in purchasing power standard); 
the size of the financial sectors of participating economies, measured by the value added 

• 

32 Directive 2004/39/EC of the European Parliament and the Council, OJ L 145, 30.4.2004, p. 1. 
33  Regulation  2012/648/EC  of  the  European  Parliament  and  the  Council  on  OTC  derivatives,  central 
counterparties and trade repositories, OJ L 201, 27.7.2012, p. 1–59. 

22 

 
 
                                                            
of  the  sector  before  taxes  (the  sum  of  profits  and  the  wage  bill  or  the  net  operating 
income). 

The  first  proxy  is  based  on  the  assumption  that  the  need  for  (taxable)  financial  services 
increases  and  correlates  with  the  size  and  wealth  of  an  economy:  the  bigger  and  richer  an 
economy,  the  more  (taxable)  financial  services  it  requires.  It  also  assumes  that  the  share 
between  taxable  financial  services  (trading  in  securities  and  conclusion  of  derivatives 
agreements) and non-taxable financial services (such as bank or mortgage loans) is similar in 
all countries and does not change with the wealth of a nation. It also assumes that the share 
between the different taxable financial services (notably trading in securities on one side and 
the  conclusion  of  derivative  agreements  on  the  other)  is  similar  across  Member  States.  In 
2011 both the GDP at current prices and in PPS of the EU11 represented 66.4% of the EU27 
GDP. On that basis, and taking as a basis the revenue estimations for EU27 as developed in 
the  initial  impact  assessment,  the  total  amount  of  revenues  for  the  EU11  would  be 
approximately EUR 38 bn. 

However,  such  a  proxy  would  largely  ignore  that  some  economies  (such  as  the  UK  or 
Luxemburg) have to a certain degree specialised in the provision of financial services, or that 
have financial institutions with large portfolios and assets available for trading etc. In order to 
take such specialisation into account, the size of the national financial sector (as e.g. measured 
by  the  net  operation  income  in  the  EU  banking  sector)  in  the  overall  European  financial 
sector34  could  be  considered  as  well.  By  using  such  a  proxy  it  would  on  the  one  side  be 
assumed  that  bigger  financial  institutions  of  the  FTT  jurisdiction  are  also  more  involved  in 
(taxable)  transactions  in  financial  instruments  than  smaller  institutions.  On  the  other  side, 
such a proxy would also – at least partially – cater for the assumption that in non-participating 
Member  States  with  large  financial  centres  there  are  more  transactions  that  are  exclusively 
undertaken  between  or  on  behalf  of  actors  of  these  economies  and  third  countries,  and  that 
are,  thus,  falling  outside  the  scope  of  the  proposed  FTT  regime.  In  2011,  the  size  of  the 
banking sector (as measured by the net operating income) of the EU11 represented 59.8% of 
the total EU27 size. On that basis, and taking as a basis the revenue estimations for EU27 as 
developed in the initial impact assessment, the total amount of revenues for the EU11 would 
be approximately EUR 34 bn. 

This  second  proxy,  based  on  the  shares  of  the  banking  sector,  appears  to  be  more  accurate 
considering that important EU27 financial centres are not covered by EU11, and the revenue-
raising potential according to this proxy will be used henceforth. However, when using this 
proxy as a basis, one should be conscientious of the fact that the  underlying parameter (net 
operating  income  in  the  EU  banking  sector)  is  much  more  volatile  that  the  parameter 
underlying the alternative proxy (GDP). On the basis of this proxy it is estimated that a EU11 
FTT would produce EUR 34 bn. of tax revenues for the participating Member States. 

Whatever of these  two proxies used, the amount of revenues represents around 0.4% of the 
EU11 GDP. This result is somewhat smaller than the relative size of revenues expected for a 
EU27  implementation,  but  still  looks  plausible,  especially  when  taking  into  account  that 

34 This indicator (ECB data, 2011) is expected to be representative as the banking sector represents around 73% 
in terms of assets of the "classical" financial sector (banking, insurances, investment funds and pension funds). It 
was not possible to take into account what is designated as the "shadow-banking" sector, which is estimated to 
correspond to approximately 59% of the banking sector in terms of assets. For more details, see ECB (2012) – 
Shadow banking in the euro area - An overview (occasional paper). 

23 

 
 
                                                            
certain important financial centres in the EU (such as Luxemburg and the UK or Ireland) are 
not (yet) part of the FTT jurisdiction for the moment. 

Considering  the  arguments  developed  earlier  in  this  section  (difficulties  in  catching  market 
structures  and  dynamics  after  the  introduction  of  the  tax  and  disaggregating  cross-border 
transactions),  it  is  hardly  possible  to  estimate  the  individual  participants'  share  of  revenues 
within the limits of an acceptable margin of error. However, if one assumed that the share of 
each participating Member State in total revenues correlated with the size of their underlying 
economies,  the  following  pie  chart  could  illustrate  what  this  would  mean  for  each  Member 
State.  Taking  as  total  revenue  the  sum  as  indicated  by  proxy  2  (EUR  34  bn.  annually)  the 
amounts could range from EUR 95 mn. for Estonia to EUR 11.75 bn. for Germany. 

Chart 1: Breakdown of revenues in the EU11+ according to GDP in PPS (2011) 

As prone with difficulties as estimating total revenue and their breakdown by country is the 
breakdown  by  product  category.  However,  when  taking  the  revenue  estimations  and  the 
breakdown  of  revenues  per  product  category  of  the  findings  of  the  impact  assessment 
accompanying the initial proposal as a starting point, one could arrive (at least for illustrative 
purposes) at a breakdown as presented in table 1.    

Table 1: Revenue estimations by product group (in EUR bn.) 

Securities 
   - shares 
   - bonds 
Derivatives 
   - equity linked 
   - interest rate linked 
   - currency linked 

EU27 
19.4 
6.8 
12.6 
37.7 
3.3 
29.6 
4.8 

24 

EU11 
13.0 
4.6 
8.4 
21.0 
1.8 
16.5 
2.7 

 
 
 
 
 
The breakdown in table 1 for securities is based on the assumption that the share of revenues 
generated by taxing the trading in securities (shares and bond) for EU11 corresponds more or 
less  with  the  share  of  the  EU11  economy  in  EU27  GDP,  as  securities  trading  might 
correspond more with the size of the underlying economy than with the size of the financial 
sector. This assumption then gives total revenues from taxing the trading in securities of EUR 
13 bn. for EU11. 

The  remainder  of  the  total  revenues  of  EUR  34  bn.  is  then  allocated  to  taxing  derivatives 
products,  and  proportionate  to  what  had  already  been  estimated  for  EU27.  This  approach 
reflects that key financial centres of the EU and also specialised in derivatives trading such as 
the City of London are for the time being located outside the FTT jurisdiction. 

6.2  Sub-Option 1: Exempting certain products35 
The  initial  proposal  stipulates  that  the  proposed  directive  shall  apply  to  all  transactions  in 
financial instruments, on condition that at least one party to the transaction is established in a 
(participating)  Member  State  and  that  a  financial  institution  established  in  the  territory  of  a 
(participating) Member state is party to the transaction or is acting in the name of a party to 
the transaction. 

A financial transaction is defined as any of the following: 
•  The  purchase  and  sale  of  a  financial  instrument,  including  securities  lending  and 

borrowing; 

•  The  transfer  between  (legal)  entities  of  a  group  of  the  right  to  dispose  of  a  financial 

instrument as owner and any equivalent operation, and 
•  The conclusion or modification of derivatives agreements. 
However,  primary  market  transactions,  i.e.  the  issuance  of  shares  and  bonds  are  excluded 
from the scope of the directive so as not to tax the raising of capital.  

Financial instruments covered by the directive are in principle all kinds of securities (such as 
shares, bonds and structured products, money market instruments, units/shares of UCITS and 
AIF  and  derivatives).  This  guarantees  a  very  broad  tax  base,  fiscal  neutrality  between  the 
different products as well as a minimization of tax evasion through substituting transactions in 
one product category by transactions in another product category. 

However,  concerns  were  raised  that  taxing  transactions  in  some  instruments  and  products 
would either be in contradiction with the body of existing EU legislation or that it could have 
negative  side  effects  that  would  outweigh  the  benefits  of  raising  revenue  or  discouraging 
high-risk or socially useless transactions and should, thus, be avoided. This held namely for 
(i)  the  taxing  of  the  issue  and  redemption  of  shares  and  units  of  UCITS  and  AIFs,  (ii)  the 
taxing  of  the  transactions  on  secondary  markets  for  government  bonds  and  bills,  (iii)  the 
taxing of repurchase and reverse repurchase agreements, and (iv) the taxing of derivatives. 

35 Adding certain products, notably spot currency transactions, has also been raised and discussed as an option in 
the Working Party of the Council. However, as according to the Commission such a spot currency transaction is 
not  a  transaction  in  a  financial  instrument  but  simply  a  capital  movement  (like  a  payment)  and  as  taxing  this 
capital movement would not comply with Article 63 TFEU, this option is discarded. 

25 

 
 
 
 
                                                            
6.2.1  UCITS and AIF 

Units  of  undertakings  for  collective  investments  in  transferable  securities  (UCITS)  and 
alternative  investment  funds  (AIF)  are  important  investment  vehicles  used  both  by  the  non-
financial  economy  as  well  as  by  institutional  investors,  such  as  pension  funds,  banks, 
insurance  companies  or  other  UCITS  and  AIF.  These  investors  have  the  possibility  to  buy 
shares or units of the UCITS and give them back at a later stage. In the EU, these UCITS and 
AIF  manage  assets  worth  more  than  EUR  11  tn.,  of  which  UCITS  manage  about  EUR  5.8 
tn.36  The  corresponding  figures  for  EU11+  would  be  EUR  3.74  tn.  and  EUR  1.97  tn. 
respectively37. UCITS and AIF can raise capital by issuing shares or units giving the owner of 
these  shares  and  units  the  right  for  fixed  or  variable  benefits,  and  the  right  to  redeem  these 
shares or units at any given time. In 2011, UCITS experienced net outflows of EUR 88 bn. 
and EUR 29.9 were outstanding in EU27 and EU11+ respectively (redemptions were superior 
to sale/issuance of shares/units)38. In 2011, UCITS have issued and redeemed shares and units 
worth EUR 15,485 bn. in EU 27 and EUR 5,264.9 bn. in EU11+ respectively39. 

While the redemption of such shares or units can be easily interpreted as a transaction on a 
secondary market, the issue of shares and units of UCITS and AIF can be interpreted as both a 
transaction on a primary market so as to raise capital to work with and as a transaction on a 
secondary  market  when  shares  or  units,  having  been  redeemed  by  previous  investors,  are 
resold to new investors. 

In  case  such  issuance  was  to  be  seen  as  a  transaction  that  aimed  at  raising  capital  such 
issuance  should  not  be  taxed  according  to  Directive  2008/7/EC.  In  case  such  issuance  was, 
however, to be seen as a transaction on a secondary market for shares and units in UCITS and 
AIF this issuance should be treated the same way as the trading in shares and bonds of other 
undertakings  so  as  to  preserve  fiscal  neutrality  across  products.  This  part  should  then  be 
taxed. However, and in contrast to the issuance of shares and bonds of other undertakings, it 
is  not  clear  to  what  extent  the  issuance  of  a  specific  share  or  unit  in  UCITS  and  AIF  is 
actually linked to the (non-taxable) raising of capital or to the (taxable) trading on secondary 
markets. 

(cid:190)  In  order  to  respect  the  provisions  of  Directive  2008/7/EC  and  for  reasons  of  tax 
neutrality, the issue of shares and units of UCITS and AIF should not be taxed. As a 
consequence,  annual  revenues  would  be  around  EUR  4  bn  lower  as  compared  to  a 
situation where this issuance was taxed. 

6.2.2  Government bonds (and bills) 

36  EFAMA  (2011)  –  EFAMA’s  impact  analysis  of  the  Commission’s  proposal  for  a  Council  Directive  on  a 
common system of financial transaction tax. 

37 EFAMA (2011) – Asset management in Europe. Facts and figures. Own calculations show that the share of 
the EU11 in the total UCITS assets in the EU is around 34%. 

38 EFAMA (2011) – Quarterly statistical release. 

39  EFAMA  (2011)  –  EFAMA’s  impact  analysis  of  the  Commission’s  proposal  for  a  Council  Directive  on  a 
common system of financial transaction tax, Annex I. 

26 

 
 
 
                                                            
As already stated in the Impact Assessment accompanying the initial proposal40, at a tax rate 
of 0.1% for securities the revenue estimates for the bonds taxation is about EUR 12.6 bn. At 
least  three  quarters  of  these  revenues,  which  is  around  EUR  9.5  bn.,  was  expected  to  be 
generated by taxing trading, borrowing and lending in government bonds. The corresponding 
figures for EU11 are estimated to be EUR 8.64 bn. and EUR 6.51 bn. respectively. 

The increase in the transaction costs in the secondary market following the implementation of 
a  transaction  tax  on  government  bonds  trading  may  impact  on  the  primary  market  by 
increasing the interest rates to be offered for newly emitted public bonds, therefore implying 
an increased cost for public budgets. According to modelling simulations undertaken by the 
Commission41, the increase in the cost of capital following the introduction of the tax could be 
about  0.07%.  If  this  rate  of  increase  was  applied  to  the  issuance  conditions  of  Government 
bonds and bills and considering the overall EU27 and EU11 outstanding government bonds of 
around EUR 8.1tn. and EUR 5.5 tn., respectively42, the initially modelled increase in the cost 
of the debt would be about EUR 5.6 bn. and EUR 3.85 bn. respectively. 

However, these estimations do not take into account some mitigating effects: 
•  First, the exclusion of primary markets from the scope of the tax will make this primary 
market more attractive,  especially for institutional investors that pursue a "buy and hold 
strategy", i.e. once they have bought a bond or bill they will hold it until maturity. Also, 
other investors might start preferring primary over secondary markets as the first are after 
all tax free. The resulting higher supply of lending capital on the primary market should 
exert a downward pressure on borrowing rates, which could partially compensate for the 
upward  pressure  following  the  introduction  of  the  tax  in  the  secondary  market.  This 
should in principle have a moderating impact on the cost of borrowing for governments; 
•  Second, interest rates for primary markets for outstanding debt (debt already issued) and, 
thus, the cost of the outstanding debt will not be affected by the tax. At the same time the 
taxing of the trading in outstanding government bonds (and bills) will generate substantial 
revenue. This is especially interesting for highly indebted countries. Only when it comes 
to rolling over this debt, which will typically take some years, conditions on the primary 
market for this debt might be affected as well; 

•  Finally, as the net revenues accruing to the public budgets will help to sustain the process 
of budget consolidation, this will also contribute to the easing of the issuance conditions 
in  the  longer  term  and  therefore  induce  a  decrease  of  the  cost  of  borrowing  for  public 
funds. 

If one estimated these mitigating effects to half the modelled predicted increase in the cost of 
capital  (to  less  than  EUR  2  bn.),  the  net  return  of  taxing  the  trading  in  government  bonds 
based on the initial revenue estimates (2011) would amount to about EUR 4.5 bn. For EU11+, 
in  other  words:  for  each  euro  potentially  to  be  spend  on  higher  interest  rates  governments 
would receive more than three euro in return in form of higher FTT revenue (gross revenue: 
EUR 6.5 bn., higher borrowing cost: EUR 2 bn., net revenue: EUR 4.5 bn.). As a result, the 

40 See SEC(2011) 1102. 

41  See  ECFIN(2012)  –  Securities  Transaction  Taxes:  Macroeconomic  Implications  in  a  General-Equilibrium 
Model (economic paper by Rafal Raciborski, Julia Lendvai, Lukas Vogel)  

42 ECFIN/EFC Subcommittee on bonds and bills (2012) – Total government debt securities outstanding. 

27 

 
 
                                                            
net  budgetary  implication  of  taxing  the  trading  of  Government  bonds  will  remain  highly 
positive,  even  when  considering  a  measurable  indirect  impact  of  the  tax  on  the  primary 
market. This notably tends to hold for highly-indebted countries. 

(cid:190)  Exempting  government  bonds  would  not  only  negatively  affect  the  tax  neutrality  of 
the  proposed  approach  but  it  would  also  have  considerable  negative  revenue 
implications  for  those  countries  doing  so.  It  will  also  jeopardize  achieving  the 
objective of ensuring a fair and substantial financial contribution to covering the costs 
of the recent crisis, as it could be expected that the (gross) revenues from the financial 
sector would be reduced by about EUR 6.5 bn. by such an exemption. 

6.2.3  Repurchase agreements 

Repurchase agreements typically serve as cash management tools in the interbank market and 
also  substitute  for  corresponding  transactions  with  central  banks,  as  the  latter  are  typically 
offered  at  less  attractive  terms.  A  repurchase  agreement  is  equivalent  to  a  spot  sale  (of  a 
security) and a forward contract, and it is economically similar to a (securities) secured loan. 
A  reverse  repurchase  agreement  is  the  same  repurchase  agreement  from  the  buyer's 
viewpoint. 

Such transactions are to be taxed as they comprise a sale and purchase of securities. However, 
they could easily be substituted by an economically rather similar secured loan, which would 
not be taxed (see box) or by an untaxed transaction with the central bank.  

Repurchase agreements 

Example 1: 
A  bank  established  in  France  lends  “over-night”  EUR  10  mn.  to  a  bank  in  Italy  (possibly 
backed up by securities as collateral). 
•  No FTT is due as outright lending and borrowing is out of scope of the FTT. 
Example 2: 
A  bank  established  in  France  buys  “over-night”  EUR  10  mn.  of  French  government  bonds 
from a bank established in Italy and sells them back the next day (repo transaction): 
•  FTT is due both in France and in Italy for each transaction (Art. 2.1). 
•  As the market price of the transaction is EUR 10 mn., and as there are two transactions, 
each bank has to pay EUR 20.000 FTT in their country of establishment if both countries 
applied the minimum rate. 

Example 3: 
A bank established in France lends shares (with a market value of EUR 10 mn.) of an Italian 
listed-stock  company  to  a  bank  in  Italy.  In  accordance  with  the  agreement,  the  shares  are 
returned to the lender after three months. The lending fee is EUR 10.000. 
•  FTT is due both in France and Italy (Art. 2.1). 
•  As  the  market  value  of  the  shares  is  EUR  10  mn.  both  the  French  and  the  Italian  bank 
would have to pay EUR  10.000 FTT in case both France and Italy applied the minimum 
tax rate. 

In 2011, repurchase agreements had a market turnover of about EUR 6.18 tn. in Europe43, and 
of about EUR 3.5 tn.  in EU11+44. Theoretically, and as each repurchase agreement consists 

43 International Capital Market Association (2011) – European repo market survey. 

28 

 
 
                                                            
in  principle  of  two  purchase  and  sale  transactions,  taxing  such  a  market  volume  could 
generate annual tax revenues in the order of EUR 17.6 bn. and EUR 10.5 bn. for EU27 and 
EU11+  respectively,  assuming  that  87.5%  are  transactions  inside  a  year  (and  100% 
transactions with at least one financial institution involved45), no market reaction, a tax rate of 
0.1%,  a  transaction  cost  of  0.6%  and  tax  elasticity  of  -1.5.  If  economic  agents  replaced 
repurchase  agreements  by  a  combination  of  spot  sales  and  forward  contracts  or  by  another 
type  of  untaxed  contract  (for  instance,  a  market  reaction  of  40%),  and  as  forward  contracts 
were derivatives to be taxed at a rate of 0.01%, potential tax revenues from repos would go 
down from EUR 17.6 bn. for EU 27 and EUR 10.5 bn. for EU11+ annually to EUR 10.3 bn. 
and  EUR  6.1  bn.  respectively  when  taxing  two  transactions.  In  the  theoretical  case  such 
repurchase agreements were entirely replaced by secured loans, potential tax revenues would 
disappear altogether. 

Not taxing repurchase agreements would harm fiscal neutrality in so far as a combination of 
spot  sales  (purchases)  and  forward  contracts  as  well  as  securities  lending  and  borrowing 
would  be  taxed  while  repurchase  agreements  would  not.  Also,  it  could  entail  foregoing 
significant revenues for public budgets, depending on the market reaction to the imposition of 
such  a  tax  on  repurchase  agreements.  Taxing  them  as  two  transactions,  on  the  other  hand, 
would  in  a  way  discriminate  against  repurchase  agreements,  e.g.  as  compared  to  securities 
lending and borrowing. Taxing only one transaction, for instance, with a market shift of 40% 
in volumes would yield only EUR 5.1 bn. for EU27 and EUR 3.0 bn. for EU11. Taxing 'over-
night' repurchase agreements for example would make this business model unattractive, even 
when  taxing  them  as  one  transaction  only.  Indeed,  repurchase  agreements  would  in  all 
likelihood  either  be  replaced  by  securitised  lending  operations  or  by  transactions  with  a 
central bank, in case the securities offered were of sufficient quality for being accepted by a 
central  bank  and  for  as  long  as  the  terms  offered  by  central  banks  were  attractive  enough. 
However, not taxing  'over-night'  repurchase agreements could constitute a  loophole also  for 
repurchase agreements with a longer maturity as it might be rather easy to design them in a 
way  so  as  to  also  qualify  for  the  'over-night'  exemption.  Thus,  effective  tax  avoidance 
provisions would need to be put in place so as to close this loophole. 

In the revenue estimations of the impact assessment accompanying the initial proposal (2011), 
it was assumed that all (taxable) repurchase agreements would be replaced by (non-taxable) 
securitised loans. This assumption could be considered to be realistic to  a certain extent for 
'over-night' repurchase agreements which cover the largest part of the market46. However, for 
agreements  with  a  longer  maturity  the  default  risk  of  the  counterparty  might  provide  an 
incentive for maintaining the initial business model even in the presence of a tax. 

6.2.4  Derivatives 

Over  the  last  three  decades,  it  has  namely  been  the  market  for  derivatives  where  turnovers 
have grown exponentially, and most of the detachment of the turnovers on financial markets 

44 This is an estimate made using the share of EU11 in the EU27 according to the net operating income of the 
banking sector. 
45  The  Impact  Assessment  accompanying  the  initial  Commission  proposal  (2011)  assumed  that  85%  of  the 
financial  transactions  involve  at  least  one  financial  institution,  besides  a  party  located  in  the  EU,  which  are 
therefore subject to taxation. 
46 International Capital Market Association (2011) – op. cit. 

29 

 
 
                                                                                                                                                                                          
from  the  growth  of  the  real  economy  has  been  taken  place  in  derivatives  markets.  Indeed, 
while the size of the global economy about doubled over the last three decades, the turnover 
on financial markets grew exponentially. 

While  these  derivatives  had  initially  been  an  instrument  for  hedging  and  risk  management, 
they  have  more  recently  also  become  widely  traded  financial  assets  in  their  own.  In 
consequence  derivatives  based  on  financial  instruments  are  now  dominating  the  market  as 
compared  to  previous  decades  where  the  derivative  contracts  had  been  more  based  on 
agricultural  products,  precious  metals,  energy  products  or  currencies.  This  has  also  brought 
concerns  related  to  increased  systemic  risk  because  of  the  leverage  inherent  to  the  use  of 
derivatives. 

It  can  therefore  no  longer  be  taken  as  granted  that  all  this  financial  intermediation  in  the 
domain  of  derivatives  markets  really  serves  the  purpose  of  "oiling  the  wheels"  of  the 
economic fabric. Instead, it is safe to assume that significant parts of this intermediation serve 
the  purpose  of  generating  rents  for  the  financial  industry  and  at  the  expense  of  the  non-
financial  economy  as  each  individual  intermediation  comes  at  a  cost,  eventually  to  be 
shouldered by the non-financial part of economy. 

Most  countries  having  a  kind  of  financial  transaction  tax  typically  apply  it  to  the  trading  in 
securities only (thus they have a securities transaction tax – STT – instead of an FTT) and less 
frequently to derivatives as well47. This is for different reasons, the most important of which 
are: the mobility of the tax base, the difficulty in defining a proper taxable amount, the fact 
that  most  of  the  high-volume  /  high-value  derivatives  agreements  are  concluded  over  the 
counter  and  the  reluctance  of  taxing  risk-hedging  activities  having  as  a  purpose  to  "oil  the 
wheels" of the real economy. 

However,  this  reluctance  in  taxing  derivatives  had  some  inconvenient  side  effects  (besides 
foregoing substantial tax revenues) as it first led to a privileged treatment of such derivatives 
and second, as it nurtured the rapid growth of business models aiming at tax-avoidance, such 
as  the  emergence  of  tax-free  "contracts  for  difference"  instead  of  (taxable)  trades  in  the 
underlying shares.  

Also,  competent  authorities  will  have  access  to  information  on  trading  in  different  markets 
through the use of key financial market legislation in force, such as MiFID or EMIR. This is 
complemented by specific provisions in the proposal for a directive implementing enhanced 
cooperation in the area of FTT. 

Finally,  the  fear  that  reduced  market  volumes  in  derivatives  markets  would  harm  the 
efficiency of financial markets, would increase the volatility on such markets and would make 
it  more  difficult  for  the  non-financial  and  financial  industry  to  hedge  risks  look  largely 
unfounded. Instead, this rolling back of (inflated) market volumes might to a large extent boil 
down  to  a  statistical  effect,  and  a  drying  out  of  the  rent-generation  business  models  for  the 
financial sector itself.48  

47  Member  States  currently  have  limited  taxes  on  some  derivatives,  while  options  are  taxed  in  most  of  the 
Member States when they are exercised, resulting in the physical delivery of the underlying securities. 
48 As a consequence of the assumed decline in  market volumes by about 75%, the notional value of contracts 
needing the management of market or counterparty risk, such as the novation through Central Counter Parties, 

30 

 
 
                                                            
 
Indeed,  the  main  reason  for  the  assumed  decrease  in  derivatives  turnover  is  that  it  is  the 
notional value of derivative transactions that is taken for measuring trading volumes and the 
market  size.  It  is  not  the  economic  value  which  is,  by  the  way,  often  very  difficult  to 
determine, both ex ante and ex post. It is also the notional value that is the tax base for the 
taxation  of  the  derivative,  mainly  for  reasons  of  administrative  ease  and  cash-flow 
considerations. Given the large difference between the notional value and the economic value 
it is reasonable to expect that – through changing business models or because the economic 
value  of  a  transaction  is  that  small  that  it  is  not  considered  worth  to  pay  a  tax  on  this  - 
turnover measured in notional values is expected to shrink significantly. 

Risk hedging volumes 

Example:  
A  trader  exposes  himself  to  a  high  nominal  risk  (e.g.  EUR  50  mn.)  and  then  hedges  the 
biggest part of this risk accordingly by also taking the opposite risk (e.g. in the order of EUR 
40  mn),  so  that  the  net  risk  exposure  would  effectively  be  limited  to  the  difference  between 
these two positions (EUR 10 mn. in this case). 
•  The introduction of a tax on the notional value of the underlying would provide incentives 
to go for the net risk only, i.e. EUR 10 mn., as this institution would then not have to pay 
an FTT of EUR 9.000 (for a notional value of EUR 50 mn. + EUR 40 mn.) but only EUR 
1.000 (for a notional value of EUR 10 mn.) 

•  Statistically,  the  turnover  volumes  would  have  declined  by  almost  90%  as  the  new 

turnover would only be EUR 10 mn. instead of the previous EUR 90 mn. 

When  determining  the  tax  rate  for  derivatives,  one  has  to  keep  in  mind  that  investing  in 
derivatives  and  investing  in  the  underlying  asset  are  to  a  certain  extent  different  activities, 
especially with respect to the leverage effect of the capital invested. It is thus proposed to set 
the tax rate for derivatives at a tenth of the rate for securities.49 As a consequence, the tax rate 
for derivatives renders derivative agreements with a leverage factor of less than ten relatively 
attractive, i.e. where the capital to be invested will be more than 10% of the notional value of 
the underlying. 

Delta hedging 

Delta hedging is a (usually) dynamic process where an investor continuously hedges an open 
position  from  an  option  by  buying  the  underlying  assets  (or  other  derivatives  closing  the 
position). In option pricing models, the Greek letter delta is used to describe the sensitivity of 
the  price  of  an  option  to  a  change  in  the  underlying  asset.  The  value  is  derived  from  the 
application  of  option  pricing  models.  For  example,  a  delta  of  0.6  indicates  that  the  option 
price increases by 0.6 Euro if the asset price increases by 1 Euro. 

Take the following  example for a hedge from Hull (2006). Assume an initial  share  price of 
100 Euro and an option price of 10 Euro (100 shares per option). An investor sells 20 option 
contracts each on buying 100 shares (2000 shares in total). Delta is assumed to be 0.6. If the 
share  prices  decreases  by  1  Euro,  the  value  of  the  options  decreases  by  2000*0.6=1200.  In 

portfolio compression in case of not centrally cleared OTC contracts or the exchange of collateral in the context 
of the management of derivative contract should decline correspondingly. 

49 Alternatively, one could set the tax rate at the same level as the one for securities trading while taking as the 
taxable amount only one tenth of the notional value of the underlying. 

31 

 
 
                                                                                                                                                                                          
order not to be exposed to this risk, the investor could buy 1200 shares of the underlying. In 
that  case  the  price  increase  in  the  shares  (+1200  Euro)  equals  the  loss  of  the  value  of  the 
options. The investor is said to be in delta neutral position since the total delta from his short 
position (option, -1200) and the long position (shares, +1200) is zero. Note that such a hedge 
also  works  the  other  way  round,  e.g.  an  investor  with  opposite  positions  would  hedge 
accordingly. Also, instead of buying the underlying the investor could buy other derivatives 
closing the position. 

A  financial  transaction  tax  as  proposed  by  the  Commission  will  increase  the  cost  of  delta 
hedging. In the example above, the tax is levied at least two times: When the options are sold 
(underlying:  200,000 Euro  *  0.01%  =  20 Euro),  when  the  underlying  is  bought  to  hedge 
(120,000 Euro * 0.1% = 120 Euro), or – alternatively – when the position is closed (120,000 
Euro * 0.01% = 12 Euro). If at the end of the option contract shares are exchanged as well, the 
tax  would  be  due  again  on  the  price  of  the  actual  exchange  value  of  the  shares.  Thus,  the 
investor  might  not  have  an  incentive  for  hedging  changes  in  his  position  (delta)  that  were 
below  0.1%  (in  case  he  hedged  by  buying  the  underlying)  or  0.01%  (in  case  he  hedged  by 
closing the position. In case the counterparty was able to pass on  its increase  in transaction 
costs, the thresholds for hedging would increase to 0.2% and 0.02% respectively. 

Note that this simple textbook example is static in the sense that only one hedge is considered. 
In  reality,  (large)  investors  hedge  dynamically  by  controlling  the  evolution  of  delta  for  the 
whole  portfolio  continuously  and  adapting  hedges  accordingly.  The  real  tax  burden  will 
depend on the specific hedging strategies employed. 

By  contrast,  those  contracts  where  this  ratio  falls  below  10%  will  be  less  attractive.  Thus, 
derivatives implying a hedging of very small and tiny risks (that means, the premiums to be 
paid are very small as compared to the notional value) or small and tiny changes in the risk 
(e.g. in the case of the so-called "delta-hedging" – see box) will be discouraged. This should 
significantly reduce the volumes and frequency of risk-hedging activities without necessarily 
triggering a higher risk exposure in the long run. This should also be expected to happen to 
the  volume  and  frequency  of  transactions  which  are  "speculative",  i.e.  where  the  actor 
invested  little  money  so  as  to  gain  a  lot,  but  with  a  small  likelihood.  Also,  "excessive" 
financial intermediation in risk-hedging activities will be discouraged, and, thus, letting these 
activities fall more in line with the risk-hedging needs of the non-financial economy. 

(cid:190)  Given (i) the high revenue-raising potential from taxing these products (EUR 21 bn. 
out of a total of EUR 34 bn.), (ii) the massive tax avoidance loopholes generated by 
not taxing these products and (iii) the contribution taxing these products for achieving 
the objective of discouraging transactions that do not contribute to the efficiency and 
stability of financial markets and that primarily aim at redistributing values instead of 
creating them, it can hardly be recommended not to tax derivatives. 

6.2.5  Conclusion 

Exempting  certain  products  from  the  scope  of  the  common  system  of  FTT  would  have 
significant negative repercussions for the achievement of the key objectives of the initiative. It 
would notably: 

• 

jeopardize  achieving  the  aimed-at  tax  neutrality  of  the  initiative  as  it  would  trigger 
distortions between different products (and actors) in the Single Market, 

32 

 
 
• 

• 

jeopardize the achievement of the goal of receiving a fair and substantial contribution 
from  the  financial  sector  to  covering  the  cost  of  the  recent  crises.  This  would  also 
jeopardize achieving the goal of consolidating public budgets or to generate revenues 
for growth-enhancing public investment, 
jeopardize the achievement of the goal to contribute to a better functioning of financial 
markets.  This  holds  especially  when  one  decided  not  to  tax  derivative  contracts  or 
high frequency trading. 

On  the  other  hand,  taxing  transactions  that  aim  at  raising  capital  for  investment  activities 
could have negative knock-on effects on growth and jobs and the overall competitiveness of 
the economy. That is, why already the initial proposal foresaw not to tax such activities. As it 
is not ruled out that the issue of shares and units of UCITS and AIF also constitutes raising 
capital for investment (besides resembling part of a secondary market transaction when these 
shares and units had first been redeemed by investors in UCITS and AIF) it is recommended 
not to tax such issue. The effect (shortfall) on expected tax revenues of this recommendation 
is estimated at around EUR 4 bn. annually. 

6.3  Sub-Option 2: Exempting certain actors 

The  initial  proposal  stipulates  that  the  proposed  directive  shall  apply  to  all  financial 
institutions  deemed  to  be  established  in  the  FTT  jurisdiction  involved  in  transactions  in 
financial instruments, except the following entities: the European Financial Stability Facility, 
the  European  Stability  Mechanism,  Central  Counter  Parties,  Central  Securities  Depositories 
and  International  Central  Securities  Depositories.  Also,  transactions  with  the  European 
Central Bank and central banks of Member States should not be taxed. 

The  definition  of  what  constitutes  a  financial  institution  was  rather  broad  so  as  to  avoid  a 
potential  loophole  when  taxing  the  trading  in  financial  instruments.  Thus,  the  definition  of 
what means "financial institution" is rather broad, covering everything from credit institutions 
to "any other undertaking" carrying out financial transactions in case these latter constituted a 
significant part of their overall activity. 

While  the  general  aim  of  such  a  broad  definition  was  shared  by  Member  States,  certain 
concerns were raised as regards the inclusion of some institutions either being public (such as 
the managers of public debt), pursuing activities in the interest of the general public (such as 
regional development banks), institutions whose activities "should be encouraged and not be 
taxed", such as pillar II and pillar III pension funds, or actors that are essential for an efficient 
functioning of financial markets such as the so-called "market makers". 

6.3.1  Managers of public debt 

One of the main aims of managers of public debt is to smoothen market developments for the 
secondary  market  of  tradable  public  debt  products  such  as  government  bonds  and  bills,  as 
well as to steady the returns (on the secondary market) for investors in public debt products. 
Through this they also aim at minimizing the cost of issuing public debt. 

Taxing such actors and their activities could make their business model less efficient while at 
the same time contributing to none of the primary objectives of developing a common system 
of  FTT  (no  contribution  of  the  financial  sector,  "zero-sum  game"  for  the  public  budget,  no 
discouragement of socially useless or highly leveraged activities) for as long as the managers 

33 

 
 
of  public  debt  are  not  massively  active  on  markets  with  highly  leveraged  derivatives  (on 
public debt). 

(cid:190)  Managers of public debt of Member States of the FTT jurisdiction should be excluded 
from the scope of the directive. However, this shall not preclude the taxability of their 
counterparties.  Such  an  exemption  is  neither  expected  to  have  negative  impacts  on 
public revenues nor is it expected to create additional tax-circumvention options. 

6.3.2  Regional development banks 

The main task of regional  development banks it to raise capital on financial markets and to 
lend it on to the private sector or to finance public investment, e.g. in infrastructure. Trading 
in  financial  instruments  does  not  belong  to  the  business  models  of  such  banks,  while  some 
risk hedging might nevertheless be required. 

The  initial  proposal  does  not  foresee  exempting from  the  scope  of  the  FTT  the  activities  of 
regional development banks. This was seen by some as taxing activities that should instead be 
supported. It is expected that only few transactions to be taxed would be those risk-hedging 
operations that are linked to the potential exposure to currency, interest rate and default risks. 

On  the  other  hand,  exempting  certain  regional  development  banks  might  raise  the  issue  of 
also totally or partially exempting other actors that also provide financing for private or public 
investment projects, including banks, AIF, insurance companies or pension funds. Exempting 
the one but taxing the others would challenge the fiscal neutrality of the FTT. Partly or fully 
exempting both would significantly narrow the tax base, especially as it would be difficult to 
define the fine line between financial transactions that are needed to hedge risks linked to the 
financing of such projects and those transactions that are not linked to the financing of such 
projects. 

(cid:190)  It  should  be  avoided  to  exempt  regional  development  banks  from  the  scope  of  the 

directive. 

6.3.3  Market makers, broker-dealers, proprietary traders ("internalisers") 

Taxing professional dealers such as market makers, brokers and proprietary traders could – at 
least  at  first  glance  –  have  two  unintended  effects:  it  could  hamper  the  effectiveness  of  the 
functioning of financial markets (as it might trigger a reduction in liquidity and, thus, increase 
spreads and volatility), and it could generate a cascading effect in the value chain of a single 
transaction  on  substance,  in  case  more  than  one  financial  institution  was  involved  on  each 
side of a transaction. On the other hand, taxing such activities could roll back business models 
that  "internalise"  spreads  and,  thus,  only  redistribute  rents  to  the  financial  sector  at  the 
expense of the non-financial economy. Also, exempting them would have significant negative 
impacts on the tax yield. 

To  cater  for  the  risk  of  a  cascading  effect  within  a  transaction  chain  the  initial  proposal 
foresees to only tax one financial institution on each leg of a transaction (the last in the chain) 
for as long as the other financial institutions were acting in the name or for the account of this 

34 

 
 
last  financial  institution  (the  "disclosed  client"  provision).50  An  alternative  to  this  disclosed 
client provision would have been to exempt market makers and broker-dealers from the scope 
of the tax in first place. However, this would then not only have put out of scope those trades 
between financial institutions that, after all, are a rent-seeking complement to intermediation 
(so-called  "internalisation-of-spreads"  transactions),  but  also  those  that  are  genuine  trades 
between  financial  institutions.  This,  in  turn,  could  have  significant  negative  revenue 
implications  as  well  and  jeopardize  the  objective  of  ensuring  a  fair  and  substantial 
contribution from the financial sector for covering the cost of the crisis. 

The potential impact of taxing market makers and broker-dealers on the efficiency of financial 
markets  looks  at  first  glance  as  being  a  real  concern  in  case  "high  liquidity"  and  "minimal 
spreads" were ends in themselves and not means to an end. However, none of them is an end 
in itself but a means so as to minimize volatility and match marginal supply and demand at an 
equilibrium price. 

Also, one would have to analyse to what extent additional liquidity (as e.g. provided by high 
frequency traders) really triggers liquid markets when there is a risk of illiquidity and whether 
minimizing  spreads  between  ask  and  bid  prices  between  different  actors  is  not  replaced  by 
injecting  spreads  between  the  ask  and  bid  price  by  the  "market  makers"  and  proprietary 
traders themselves. 

Since the emergence of the global financial crisis in 2008, mainly hitting OECD economies 
having had the most sophisticated financial markets, the traditional paradigm of "the more the 
better" as regards liquidity and financial intermediation has been challenged. This also holds 
for the role of broker-dealers, market makers, propriety traders, high frequency traders and so-
called "modern" investment banking activities (as opposed to "traditional" investment banking 
activities  that  tried  to  facilitate  the  raising  of  capital,  restructuring  of  companies  or  mergers 
and acquisitions) in general. 

limit high-frequency and proprietary trading; 

This  review  eventually  led  to  a  paradigm  shift  triggering  off  a  plethora  of  new  financial 
market regulations trying to: 
•  better control what is going on in the shadow-banking sector; 
• 
•  deleverage derivatives markets and 
• 

limit the turnover in products that are considered carrying a lot of risk or not contributing 
to  the  efficient  functioning  of  financial  markets  but  constituting  mainly  rent-seeking 
business models in favour of financial-market actors themselves. 

Taxing the financial market transactions of such actors would, thus, complement and support 
financial market regulation, while not taxing them would forego this positive effect while at 
the  same  time  violating  the  fiscal  neutrality  of  the  tax  aimed  at,  as  it  would  privilege  these 
actors over all the other actors. Also, not taxing the transactions of market makers etc. would 
significantly reduce the tax base (with at least 50% in the case of transactions in securities). 

(cid:190)  The  transactions  of  brokers  trading  in  their  own  name,  and  of  market  makers  and 

proprietary traders should be taxed. 

50 Article 9.2 of the initial proposal (Article 10.2 of the new proposal) reads: "Where a financial institution acts 
in the name or for the account of another financial institution only that other financial institution shall be liable to 
pay FTT". 

35 

 
 
                                                            
6.3.4  Pillar II and pillar III pension funds 

The  reference  to  pension  funds  in  the  context  of  the  proposal  for  a  directive  for  a  common 
system  of  FTT  is  to  Institutions  for  occupational  retirement  provision  (IORPs)  regulated  by 
the  Directive  2003/41/EC  (see  Article  2.1(7)  (f)  of  the  initial  Commission  proposal).  The 
quoted  article  also  covers  their  specialised  managers,  especially  for  the  case  in  which  these 
institutions – which are usually the funds themselves – are not legal persons. Such institutions 
are  private  and  are  completely  separate  from  the  public  (government-managed)  schemes 
(under public law). So, in this context this paper will actually discuss only the so-called "pillar 
II" and "pillar III" pension systems.51 

The  relative  importance  of  (funded)  pension  funds  is  very  different  across  the  European 
Union. It is the highest in the Netherlands (135% of its GDP or around EUR 850 bn. in 2010) 
followed by Finland (82% of the Finnish GDP)52. In Denmark and Ireland it corresponds to 
around 50% of GDP, while in countries like Germany, Austria and Italy it reaches around 5% 
of GDP. In some of EU10 Member States, such as Poland or Hungary, these pension funds 
have accumulated assets corresponding to around 15% of GDP.  

The impact of an FTT on pension funds will depend on both the asset allocation (portfolio) 
and on the investment strategy (more frequent trading vs. less frequent trading, for example). 
If one looks at the asset allocation in selected pension funds, not all these assets represent 
taxable financial instruments as defined in the proposal, neither do all the transactions. As 
an illustration, cash and deposits and other assets (including derivatives, but also investment 
in real estate and others) make up for 22% (or almost EUR 190 bn.) in the Netherlands (over 
4% in cash and deposits) and 34% in Bulgaria (over 28% in cash and deposits). 

One  could  now  argue  that  the  introduction  of  an  FTT  would  affect  (private)  pension  funds 
involved in more frequent trading much more than those that trade less frequently in financial 
instruments, i.e. those funds pursuing a "buy and hold" strategy would be much less affected 
than those following an "active" strategy with significant and frequent turning over of assets. 
This difference is illustrated in the below box. 

"Buy and hold" versus "active management" strategies 

Example 1: 
A Dutch pension fund has invested its assets of EUR 10 bn. the following way: 10% in shares, 
10% in real-estate funds, 70% in bills and bonds, and 10% in other (such as cash or deposits 
or  real  estate).  The  Fund  follows  a  passive  “buy  and  hold”  strategy,  i.e.  it  shadows  the 
relevant indices for shares, it purchases bills and bonds when they are issued and holds them 
until maturity. Pay-outs (to pensioners) and pay-ins (from contributors) are balanced. Due to 
changes in the composition of the stock-market indices, it has to turn over (buy and sell) on 
average  10%  of  its  shares  and  real-estate  funds  each  year.  None  of  the  new  purchases  are 
purchases on primary markets. 

51 The model of the World Bank, intended as a blueprint for developing/transition countries, consists of (I) public 
pay-as-you-go (PAYG) pensions, (II) mandatory, privately managed pensions (occupational schemes), and (III) 
voluntary (private) individual accounts (without any link to the employment status). 
52  The  Finnish  system  is  one  of  the  exceptions  in  the  EU  since  it  has  a  large  funded part  of what  is  normally 
defined as its pillar I pension fund, managed by private managers. 

36 

 
 
 
                                                            
•  Transactions in 80% (primary markets for bills and bonds, cash and deposit and other such 
as  real  estate)  are  out  of  scope  of  the  FTT  directive.  The  turning  over  of  the  shares  and 
real-estate funds carries Dutch FTT. 

• 

•  The pension fund has to pay EUR 400.000 Dutch FTT annually for the turning over of its 
shares in case the Netherlands applied the minimum tax rates. This corresponds to 0.004% 
of its assets. 
If  these  assets  represented  20  years  of  savings  /  asset  accumulation  the  annual  figure  of 
0.004%  of  total  assets  translated  into  0.08%  of  annual  savings,  i.e.  a  pensioner  who  has 
invested  EUR  100/month  would  receive  returns  (after  FTT)  as  if  he  had  invested  only 
EUR 99.92/month in case the fund managers passed these costs on fully to the pensioners 
and not to the borrowers of capital. 

Example 2: 
Same  asset  structure  etc.  as  in  the  previous  case,  but  this  time  the  pension  fund  follows  an 
“active” strategy, and turns over all  its assets except cash and deposits and other (such as 
real estate), i.e. 90%  twice a year. It does not intervene on primary markets for bonds, bills 
and shares. Also, as it is more exposed to market volatility, it is assumed to hedge 90% of all 
its assets four times a year against diverse risks. 
•  The turning over of assets carries Dutch FTT, so do the hedging operations; 
•  The pension fund has to pay EUR 36 mn. Dutch FTT annually for the turning over of its 
assets. Annual Dutch FTT for hedging 3.6 mn. This corresponds to 0.396% of its assets. 
If  these  assets  represented  20  years  of  savings  /  asset  accumulation  the  annual  figure  of 
0.396% of total assets translated into 7.92 % of annual savings, i.e. a pensioner who has 
invested  EUR  100/month  would  receive  returns  (after  FTT)  as  if  he  had  invested  only 
EUR 92.08/month in case the fund managers passed these costs on fully to the pensioners 
and not to the borrowers of capital. 

• 

As  these  active  funds  would  also  have  to  cover  the  market  risk  of  falling  bond  prices  on  a 
permanent  basis  (mark  to  market),  as  they  would  like  to  maintain  the  option  to  sell  these 
bonds  before  maturity  their  derivatives  activities  might  also  be  more  important  by  several 
orders  of  magnitude.  This  impact  could  possibly  be  partly  offset  due  to  the  potentially 
positive effect a FTT would have on volatility of bond prices which would benefit the longer 
term investment strategy of pension funds (because of higher predictability). Evidence in the 
economic literature on this effect on volatility is however mixed. 

Also, the investment strategy with respect to the portfolio structure could have an impact on 
the effects of the FTT on pension funds, as e.g. investing in government bonds and bills on 
primary  markets  would  not  be  a  taxable  transaction,  while  buying  and  selling  shares  on 
secondary  markets  or  investing  in  derivatives  such  as  structured  products  would  be  taxable 
events. 

Not taxing the issue of shares and units in UCITS and AIF together with not taxing primary 
markets  for  securities  already  covers  a  significant  part  of  the  financial  market  transactions 
typically undertaken by pillar II and pillar III pension funds, notably by the more "passive" 
ones.  This,  in  combination  with  the  assumed  substantial  fall  in  the  turnover  of  derivatives 

37 

 
 
 
contracts  should  effectively  ring-fence  these  pension  funds  from  the  direct  effects  of  the 
FTT.53 

The  same  mechanisms  should  be  at  work  as  regards  the  indirect  effects,  i.e.  pension  funds 
investing  in  financial  institutions  and  funds  (of  funds)  who  themselves  are  then  active  on 
financial  markets.  The  FTT  would  favour  investments  in  more  passive  investment  vehicles. 
Also,  due  to  reduced  churning  and  hedging  by  these  vehicles  themselves  the  latter's 
substantial management fees would have a potential for being reduced. The partial crowding 
out  of  "spread  internalisers"  or  high  frequency  traders  should  also  help  both  pension  funds 
themselves and the vehicles in which they invest to get better deals on financial markets.  

In sum, the impact of the common system of FTT in EU11+ can be expected to have a rather 
limited impact on pillar II and pillar III pension funds and their beneficiaries. Also, asking for 
an  exemption  (or  special  treatment)  under  the  FTT  directive  for  pension  funds  would 
undermine  the  level-playing  field  between  various  products  available  for  savings  and 
retirement. Despite the specifics of pension funds, there are equivalent products available on 
the  markets,  such  as  various  types  of  bonds,  collective  investment  funds  and  life  insurance 
contracts  (unit-linked  insurance  plans).  Moreover,  pension  funds  (both  public  and  private) 
enjoy a favourable tax treatment in numerous Member States.   

(cid:190)  Pillar  II  and  pillar  III  pension  funds  should  not  be  excluded  from  the  scope  of  the 

directive. 

6.3.5  Conclusion 

Exempting  certain  actors,  namely  professional  dealers,  brokers  or  market  makers  from  the 
scope  of  the  common  system  of  FTT  would  have  significant  negative  repercussions  for  the 
achievement of the key objectives of the initiative. It would notably: 

• 

• 

• 

jeopardize  achieving  the  aimed-at  tax  neutrality  of  the  initiative  as  it  would  trigger 
distortions between different actors (and products)  in the Single Market, 
jeopardize the achievement of the goal of receiving a fair and substantial contribution 
from  the  financial  sector  to  covering  the  cost  of  the  recent  crises.  This  would  also 
jeopardize achieving the goal of consolidating public budgets or to generate revenues 
for  growth-enhancing  public  investment.  After  all,  more  than  half  of  all  financial 
market transactions are carried out by those actors. 
jeopardize the achievement of the goal to contribute to a better functioning of financial 
markets.  This  holds  especially  when  one  decided  not  to  tax  all  these  financial 
institutions. 

On  the  other  hand,  excluding  the  managers  of  public  debt  should  hardly  have  any  negative 
impact on the achievement of the key policy objectives. The same, however, does not hold for 

53  According  to  information  provided  by  representatives  of  the  Dutch  pension  fund  industry,  it  appears  that 
around 50% of a tax bill of EUR 3 bn. annually would stem from the tax on repurchase agreements, 37% from 
taxing its investment in equities and bonds and about 13% from the tax on derivatives. Repurchase agreements 
could  be  turned  into  tax-free  borrowing  and  lending  operations  combined  with  risk-offsetting  derivatives 
contracts.  Also, pension funds are, as institutional investors, key players on tax-free primary markets for equities 
and  bonds  and  collective  investment  funds.  It  is  also  assumed  that  the  turnover  of  derivatives  markets  will 
decline by about 75%. 

38 

 
 
                                                            
exempting other actors, such as development banks or pillar II and pillar III pension funds, as 
these are in competition with other actors often providing similar services. 

6.4  Sub-Option 3: Changing the provisions on the residence principle  

When trying to tax financial transactions, one has to decide what should be the determining 
factor triggering a taxable event: Should it be the place of transaction that counts? Should it 
be the actor (and where it is established) that counts? Should it be the product (where it has 
been issued) that counts? Or should it be a combination of two or all of these parameters? 

Traditionally,  countries  have  opted  either  for  the  first  criterion  (it  is  relevant  where  a 
transaction takes place, and not who is trading or what is traded) or the third criterion (it is 
relevant  what  is  traded  and  not  who  is  trading  or  where  the  trade  takes  place).  The  other 
parameters and the key parameter itself were then simply used to define exemptions, e.g. the 
UK  Stamp  Duty  is  based  on  the  issuance  principle,  i.e.  the  tax  is  a  tax  on  the  purchase  of 
financial  instruments  issued  in  the  UK,  but  not  all  of  them  (only  shares  and  not  e.g. 
government  bonds  or  derivatives)  and  the  tax  does  not  have  to  be  paid  by  each  buyer  (e.g. 
brokers and market makers are exempted).  

6.4.1  The features and effects of the original proposal 

The  Commission  in  its  initial  proposal  for  an  FTT  has  opted  for  taxing  transactions  on 
condition that at least one party to the transaction is established in a Member State and that a 
financial institution established in the territory of a Member State is party to the transaction or 
is acting in the name of a party to the transaction. The main reason for this approach was that 
one key aim of the FTT is to design the tax that guarantees tax neutrality while at the same 
time enabling Member States to receive a fair and substantial contribution from the financial 
sector for covering the cost of the financial market and subsequent economic crisis, and that 
this  would  only  be  possible  when  one  taxes  all  financial  products,  including  derivative 
agreements.  However,  as  the  majority  of  these  latter  (over-the-counter  derivatives)  are 
typically not issued somewhere precisely (except for the exchange-traded derivatives) and as 
they  can  be  concluded  wherever  in  the  world,  solely  relying  on  the  place  of  transaction 
principle or solely on the issuance principle would not have allowed taxing such products. 

However,  what  looks  in  the  initial  Commission  proposal  at  first  glance  as  applying  the 
residence principle only (EU party and EU financial institution) is at second glance, i.e. when 
also taking the provisions of Article 3 of the initial proposal into account, a combination of 
the residence and of the place of transaction principle. Indeed, Article 3.1 stipulates: "For the 
purpose  of  this  directive,  a  financial  institution  shall  be  deemed  to  be  established  in  the 
territory of a Member State where … it has been authorised by the authorities of that Member 
State  to  act  as  such,  in  respect  of  transactions  covered  by  that  authorisation".  However,  if 
one  wants  to  trade  on  European  trading  platforms  and  interact  with  European  trading 
platforms one needs an authorisation for doing so. Thus, it was also aimed at that all relevant 
transactions on EU territory would have been taxable events. 

In  consequence,  the  broad-based  residence  principle  proposed  in  September  2011  already 
casted  a  very  wide  net  to  catch  financial  transactions.  At  the  end  of  the  day,  only  those 
transactions that did not serve EU clients or that did not take place in the EU at all and, thus, 
had no link whatsoever between the economic substance of the transaction and the territory of 

39 

 
 
any Member State would not be taxed. Applying this design to EU11+ instead of EU27 would 
– at first glance – not weaken the effectiveness of this approach.54 

6.4.2  Adding elements of the issuance principle 

Some ideas that aimed at strengthening these provisions on the establishment were discussed 
in  both  the  Council  and  the  European  Parliament;  the  basic  idea  was  to  also  cover  those 
transactions where products issued in a (participating) Member State would be traded by non- 
EU(11+) parties.55 Thus, it was proposed to not only check "who is interacting with whom?" 
but  also  "what  is  traded?"  independent  of  whether  an  EU(11+)  party  is  involved  in  the 
transaction  or  not.  This  proposal  got  its  inspiration  from  the  application  of  securities 
transaction  taxes  around  the  world,  including  the  UK  Stamp  duty  and  Stamp  Duty  Reserve 
Tax (SDRT).56 

This  addition  concerns  essentially  shares,  bonds  and  equivalent  securities57,  money-market 
instruments,  structured  products,  units  and  shares  in  collective  investment  undertakings  and 
derivatives traded on organised trade venues or platforms. In these cases, the transaction has a 
sufficient  connection  with  the  participating  Member  State  in  which  these  instruments  are 
considered  to  have  been  issued  (i.e.  where  the  reference  entity/company  is  residing).  The 
persons  involved  in  trade  in  these  instruments  will  be  deemed  to  be  established  in  that 
Member State, and the financial institution(s) concerned will have to pay FTT in that Member 
State. 

Adding  such  an  element  to  the  provisions  already  tabled  could  assist  participating  Member 
States in fighting evasion and relocation and catch another significant portion (about 10%) of 
financial transactions in shares issued by EU11 entities and of transactions in debt securities 
issued by EU11 entities58 (not captured by using the residence principle)., which would yield 
as revenues EUR 0.39 bn. from taxing shares and 0.83 bn. from taxing bonds and bills.59 

However,  while  such  a  provision  for  the  trading  in  securities  should  not  raise  any  legal 
concerns  as  regards  extraterritoriality  (after  all,  this  principle  is  already  well-established 
international  tax  practice),  this  might  not  hold  for  applying  this  principle  to  derivatives,  i.e. 
financial  instruments  that  were  derived  from  a  security  issued  in  one  of  the  participating 
Member States. Complementing the proposed residence principle by elements of the issuance 
principle  could  help  to  further  discouraging  relocation,  as  indicated  in  the  proposal  for  a 

54 See, however, also section 6.4.4. 
55 See, notably, the opinion of the European Parliament of 23 May 2012 on this. 
56 See Annexes 1 and 2 for more details on this issue. 
57 Depositary receipts or similar securities issued with the essential purpose of avoiding tax on transactions in the 
underlying security issued in a participating Member State (i.e. if a tax benefit would otherwise arise) should be 
considered issued in that participating Member State and should also fall within the scope of the tax. 
58 IMF (2012) – Coordinated Portfolio Investment Survey (CPIS) and own calculations. 
59 Specific assumptions were made: transactions of the rest of the world minus international organisations minus 
EU27 are carried out 30% outside the reach of the residence principle, while transactions of the rest of the EU 
(EU27  minus  EU11)  are  carried  out  20%  outside  the  reach  of  the  residence  principle.  As  the  CPIS  reports 
positions, an annual average turnover rate of 110% for shares and for bonds was assumed (a rather conservative 
hypothesis; see European Commission (2008) - The European Financial Integration Report/EFIR, p.33). It was 
also assumed that only 85% of these transactions are carried out with at least one financial institution involved. 

40 

 
 
                                                            
Council  decision  authorising  enhanced  cooperation  in  the  area  of  FTT  and  in  the  letters  of 
request from the eleven Member States, and to supplement to a small extent the tax revenues.  

6.4.3  Changing the order of conditions 

The  order  of  conditions  defining  the  "establishment"  of  a  financial  institution  or  a  non-
financial institution party to a transaction in a financial instrument also determines the place 
and Member State of taxation. The proposed order followed the logic that the first right to tax 
should be given to the place of establishment of the headquarter of a financial institution, as – 
after all – it had typically been the Member State of the headquarter of a group that had been 
forced to bail out financial institutions having entered and having got problems in the troubled 
waters of the financial market and the subsequent economic crisis. 

However,  some  Member  States  (namely  some  of  the  new  Member  States  and  some  smaller 
peripheral  Member  States)  claimed  that  the  order  of  conditions  would  disfavour  those 
countries  in  which  the  financial  sector  is  dominated  by  branches  of  banks  of  other 
EU27/EU11+  Member  States.  Thus,  these  branches  would  have  to  pay  the  tax,  but  the 
revenue  would  accrue  to  the  Member  State  of  principal  establishment  where  the  respective 
headquarters were deemed to be located. 

Other  Member  States  would  have  liked  to  see  that  the  elements  of  the  issuance  principle 
should  get  priority  over  the  other  criteria  so  that  the  tax  revenues  from  trading  in  products 
issued in a Member State would accrue to those countries in which the traded products (such 
as  enterprise  shares  or  government  bonds)  had  actually  been  issued.  Such  a  proposal  might 
benefit  those  countries  that  are  more  heavily  indebted  or  that  have  a  strong  share-holding 
culture.  However,  under  such  an  approach,  due  account  would  have  to  be  taken  of  the 
evolving  legislative  and  regulatory  framework  that  will  in  future  also  allow  a  more  flexible 
approach towards the place and country of issuance. 

Parties  located  in  non-participating  Member  States  and  in  third  countries  would  actually 
benefit  from  the  same  treatment  according  to  the  rules  on  establishment  laid  down  in  the 
proposal for a Directive. 

(cid:190)  All three approaches have their pros and cons. However, as the bailing out of financial 
institutions  had  primarily  been  undertaken  by  those  Member  States  where  the 
headquarters  were  located,  there  might  be  certain  logic  in  maintaining  the  order  of 
criteria as proposed by the Commission. 

6.4.4  The  effects  of  enhanced  cooperation  on  the  effectiveness  of  the  proposed  residence 
principle 

Under  the  initial  proposal,  if  implemented  at  the  level  of  the  entire  European  Union,  all 
relevant transactions carried out on the territory of a Member State would have been a taxable 
event, as both EU and non-EU financial institutions typically need an authorisation for such 
transactions  undertaken  in  the  framework  of  their  specific  activity.  The  difference  between 
financial institutions from the EU60 and those from the rest of the world was, however, that 
EU  (and  EFTA3)  financial  institutions  typically  got  the  authorisation  in  a  single  Member 

60  Three  members  of  the  European  Economic  Area  (EEA)  are  also  part  of  the  Internal  Market  through  the 
Agreement  on  the  European  Economic  Area,  effective  as  of  1994,  namely  Iceland,  Lichtenstein  and  Norway 
(members of the European Free Trade Association/EFTA, next to Switzerland) – hereafter referred to as EFTA3. 

41 

 
 
                                                            
State  to  undertake  the  transaction  wherever  in  the  EEA  (the  so-called  "passport"),  while 
financial institutions from the rest of the world needed such an authorisation for each Member 
State in which they wanted to trade. 

Under  enhanced  cooperation  there  are  now  three  groups  of  actors:  (i)  non-EEA  financial 
institutions  trading  in  the  FTT  jurisdiction  and  needing  a  specific  authorisation  there,  (ii) 
financial institutions from the FTT jurisdiction and having received their authorisation there, 
and  (iii)  financial  institutions  from  non-participating  Member  States  and  from  EFTA3 
countries having received the authorisation in their home country and also being allowed to 
carry  on  their  specific  activities  and  trade  in  the  FTT  jurisdiction.  Under  an  FTT  for  EU27 
this  third  group  would  not  have  existed,  thus,  not  caused  differentiated  treatment  of  the 
different actors as all groups would have had to pay the tax. 

Under  and  FTT  for  EU11+,  however,  and  under  unchanged  provisions,  the  third  group,  i.e. 
financial institutions from non-participating Member States and from EFTA3 countries would 
escape from having  to  pay  the  tax  in case they were  interacting within  the  FTT jurisdiction 
with another party not deemed to be established there. Thus, one would have to add elements 
of  the  place-of-transaction  principle  if  one  wanted  to  fix  this  new  problem  of  non-taxation 
despite the fact that the transaction took place in the FTT jurisdiction. Also, and so as to avoid 
a  discrimination  of  regulated  trading  venues  (where  authorisation  is  typically  needed)  and 
non-regulated  trading  venues  and  over-the-counter  transactions,  this  place-of-transaction 
features  should  also  be  extended  to  transactions  carried  out  for  these  latter  venues  and 
transactions. 

(cid:190)  The  initial  principle  should  be  maintained  and  complemented  by  elements  of  the 
issuance principle for securities and elements of the place of transaction principle. The 
ranking of the conditions triggering taxation and the place of taxation could be left to 
Member States to agree upon themselves. This latter issue has mainly implications for 
the regional power to tax. 

Also,  concerns  have  been  raised  as  some  important  financial  centres,  notably  London, 
Amsterdam,  Luxemburg  and  Dublin,  are  located  in  the  EU  but  not  in  the  envisaged  FTT 
jurisdiction.  On  the  one  side,  Member  States  hosting  such  financial  centres  fear  that  as  a 
consequence of the establishment of a common system of FTT in EU11+ activities in these 
centres  previously  having  not  been  taxed  would  in  future  be  taxed,  thus,  making  these 
financial  centres  less  attractive.  On  the  other  side,  participating  Member  States  fear  that 
financial institutions established in the FTT jurisdiction might either relocate their activities to 
these  financial  centres,  thus,  triggering  negative  repercussions  for  their  own  financial 
industry, or they might turn their branches already active in these financial centres into legally 
independent subsidiaries, both of this with the aim of minimizing the tax burden. 

The  first  kind  of  concerns  would  in  principle  be  unfounded  in  case  the  proposed  broadly-
defined  residence  principle  was  properly  implemented,  as  in  such  a  regime  all  financial 
centres  would  be  affected  in  the  same  way,  i.e.  transactions  involving  financial  institutions 
deemed  to  be  established  in  the  FTT  jurisdiction  would  be  taxable,  independent  of  whether 
they  were  carried  out  in  Frankfurt,  London,  New  York  or  Zurich.  On  the  other  hand, 
transactions  not  involving  financial  institutions  deemed  to  be  established  in  the  FTT 
jurisdiction would not be taxable under enhanced cooperation, neither in London nor in New 
York or Zurich. 

Of some relevance – at least at first glance - seem to be the concerns that financial institutions 

42 

 
 
of Member States of the FTT jurisdictions might want to relocate their headquarters to non-
participating Member States or to turn their branches in non-participating Member States into 
legally independent subsidiaries in the hope that these subsidiaries would not be deemed to be 
established in a Member State of the FTT jurisdiction. 

This  relocation  of  the  seat  or  the  "subsidiarisation"  of  branches  would,  of  course,  not  help 
avoiding having to pay the tax for as long as the counterparty or the client on behalf of whom 
they  are  acting  was  deemed  to  be  established  in  the  FTT  jurisdiction  (or  as  long  as  the 
financial  institution  would  trade  in  instruments  issued  by  EU11+  entities).  However,  such  a 
relocation of the headquarter (or a "subsidiarisation" of branches) could be seen as a way to 
circumvent having to pay the tax for all transactions for which the counter party or the client 
on  behalf  of  which  they  are  acting  was  also  not  deemed  to  be  established  in  the  FTT 
jurisdiction,  i.e.  transactions  exclusively  with  or  on  behalf  of  clients  from  the  non-FTT 
jurisdictions (on instruments issued for entities from outside the enhanced cooperation zone). 

6.4.5  Conclusion 

Adding elements of the issuance principle would strengthen the anti-relocation features of the 
proposed  residence  principle  and  make  additional  transactions  taxable.  In  sum,  it  would 
positively contribute to achieving the key objectives of the proposal. So as to cater for the fact 
that  the  common  system  will  first  only  be  implemented  for  a  subgroup  of  Member  States 
instead  of  the  entire  European  Union  and  in  order  to  maintain  the  integrity  of  residence 
principle as initially proposed. 

The  changes  proposed  in  this  section  should  make  sure  that  achieving  the  initial  objectives 
will  not  be  challenged.  Changing  the  order  of  criteria  triggering  the  taxable  event  would 
mainly have an impact on the regional distribution of tax revenues, mainly at the expense of 
those  Member  States  that  host  the  headquarters  of  important  financial  institutions  and  in 
favour of those Member States that host branches of financial institutions. 

6.5  Sub-Option 4: Phasing in of the common system 

From  an  economic  point  of  view  it  would  be  best  to  implement  all  the  proposed  common 
system of FTT at the EU11+ level at the same time, as a "big bang", as temporarily exempting 
certain actors (such as pension funds), products (such as the trading in government bonds or 
parts or the entire derivatives market) or markets (such as non-organised markets or over-the-
counter transactions) would: 
•  Trigger massive substitution of taxed and untaxed activities, e.g. the trading in shares and 
bonds  might  be  replaced  by  the  developments  of  "contracts  for  difference"  or  "financial 
spread bets" in case derivatives markets were not covered; 

•  Entail substantial discrimination between products that were taxed (such as the trading in 
enterprise  shares  or  bonds)  as  compared  to  those  not  taxed  (e.g.  trading  in  government 
bonds); 

•  Provide  preferential  treatment  to  certain  actors  (such  as  "market  makers"  or  high-
frequency  traders)  that  introduce  a  spread  of  their  own  into  markets,  that  inflate  market 
volumes and potentially contribute to injecting additional risks and volatility in financial 
markets; 

•  Privilege  non-taxed  trading  platforms  or  business  models  (such  as  over-the-counter 

activities) in case they were exempted; 

•  Jeopardize  the  proper  functioning  of  the  single  market  as  a  result  of  all  these 

inefficiencies; 

43 

 
 
•  Substantially erode the revenue basis and, thus, make it impossible to achieve one of the 
core objectives of the whole initiative, i.e. making sure that the financial sector makes a 
fair and substantial contribution to financing the costs of the crisis. 

However,  such  a  "big  bang"  might  be  too  difficult  to  implement  in  the  near  future  also 
because  little  or  no  experience  exists  in  the  EU  or  world-wide  with  taxing  the  most  mobile 
products and actors in the context of a broad-based FTT. Thus, a step-by-step approach might 
be  the  appropriate  compromise  by  starting  narrowly,  gaining  experience  and  then  enlarging 
the scope of the initiative. 

In  any  case,  in  such  a  step-by-step  approach  the  envisaged  "end-game"  (all  markets,  all 
products and all actors) would have to be established in the directive as it would otherwise no 
longer be based on the scope and objectives of the initial proposal. 

6.6  The macro-economic effects of an FTT under enhanced cooperation 

As  explained  in  the  Impact  Assessment  accompanying  the  initial  proposal,  the  use  of 
Dynamic  Stochastic  Equilibrium  (DSGE)  models  is  a  standard  procedure  of  estimating  the 
macroeconomic effects of policy changes.61 

Their  advantage  over  sector-specific  Partial  Equilibrium  Models  is  that  they  fully  take  into 
account spill-over effects to other sectors as well as second-round effects triggered by a policy 
change, including the effects of the recycling into the economy of higher tax revenues. One 
possible  disadvantage  is  that  they  typically  have  a  less  detailed  sectoral  breakdown  of  the 
economy than partial equilibrium models. 

In order to assess the macroeconomic impacts of taxes on financial transactions specifically, 
Commission services have developed a new DSGE model. The version of the model used for 
the  Impact  Assessment  was  built  on  the  assumption  (amongst  others)  that  all  investment  is 
financed with the help of issuing new shares, and that a fall in the price of shares works as a 
financing constraint for new investment and will hence trigger a decline in overall investment.  

The  model  is  a  two-period  (comparing  two  equilibriums)  and  closed-economy  model.  It 
includes hypotheses in terms of relocation and market reaction and, in the absence of specific 
information on the speed of the process; the assumption is made that the new "steady state" 
would be reached after 40 years62. 

The  model  could  at  that  time  not  take  into  account  the  full  concrete  design  of  the  tax  as 
defined in the proposal.  It was also  based  on  the strong assumption that all new investment 
had to be exclusively financed with the help of issuing new shares that are traded and subject 
to  the  tax.  As  a  result,  the  mitigating  effects  included  in  the  proposal  remained  outside  the 
model simulations and were taken into consideration ex post. This held namely for: 
• 
• 

the exclusion of primary markets from taxation; 
the  exclusion  of  transactions  that  do  not  involve  financial  institutions  or  only  non-EU 
parties; 

61 SEC(2011) 1102. 
62 In multi-period DSGE models, it typically takes several decades until the new equilibrium is reached. So as to 
remain consistent with other long-term modelling approaches (such as energy, transport and climate roadmaps) 
or long-term scenarios (such as demographic scenarios), the year 2050 was chosen. 

44 

 
 
                                                            
• 

the ring-fencing of financial sources for investment that do not rely on securities. 

Since  September  2011,  the  model  has  been  further  developed.  In  particular,  the  assumption 
that all investment has to be financed with the help of issuing new shares has been changed to 
take  into  account  the  fact  that  in  the  real  world  companies  also  have  access  to  alternative 
sources of finance that are not subject to the tax. This holds notably for the bulk of European 
enterprises  (more  than  95%  if  taken  by  number)  not  listed  on  stock  exchanges  and  neither 
issuing shares nor other securities. 

The additional model specifications63 allow for the assumption that only a part of the sources 
of  financing  are  affected  by  the  tax  on  financial  transactions.  Indeed,  securities-based 
financing  is  only  partly  affected  by  applying  the  tax  (primary  markets  are  excluded)  and  - 
more importantly - other forms of financing (such as borrowing from banks or the raising of 
capital  through  venture  capital  funds)  are  not  taxed.  Depending  on  the  source  and  method 
applied64, these alternative and untaxed finance sources represent between 60 and 80% of all 
financing  of  investment.  In  the  central  scenario  (assumed  to  be  a  conservative  one),  it  is 
assumed that these alternative and untaxed finance sources represent 70%. 

Under these assumptions, the estimation of the possible deviation of GDP was established at - 
0.28%,  as  the  tax  is  simulated  to  increase  the  cost  of  capital by  about  7  basis  points  in  this 
scenario. As a consequence, in such a scenario, instead of being 81.4% above today's level, 
the European GDP in around 2050 would have risen by 81.1% above today's level. 

Also,  and  as  was  highlighted  in  the  Impact  Assessment  as  well,  these  model  simulations 
assume the recycling of revenues generated by the FTT back into the economy with the help 
of lump-sum transfers to private households, so as to keep the debt-to-GDP ratio constant and 
so  as  to  allow  for  isolating  the  "distortionary"  impact  of  the  tax  from  other  distortions. 
Through  this,  the  model  paints  a  modest  negative  impact  of  the  tax  on  economic  efficiency 
and, thus, on GDP. 

An alternative scenario which lowers e.g. labour or corporate tax rates instead of lump-sum 
taxes to rebate FTT revenues would lead to a more favourable picture for overall economic 
efficiency  and,  thus,  economic  growth.65  The  same  held  if  the  tax  revenues  collected  were 
spent  –  be  it  at  the  European  or  be  it  at  the  national  level  -  on  growth-enhancing  public 
investment. Here, model simulations show a positive impact of such spending (as compared 
to providing lump-sum transfers to private households) in the order of magnitude of 0.2% to 

63 For more details on the model specifications ECFIN(2012) – Securities Transaction Taxes: Macroeconomic 
Implications  in  a  General-Equilibrium  Model  (economic  paper  by  Rafal  Raciborski,  Julia  Lendvai,  Lukas 
Vogel). 
64 The sources of financing of companies are generally assumed to be new equity (10%), retained earnings (55%) 
and debt (35%). The share of debt securities in total debt of non-financial corporations is estimated at about 15% 
(or about 5% of total financing). Hence, assuming bank debt and retained earnings are ring-fenced, the share of 
corporate financing that would be directly affected by the FTT is about 15% of the total. See for more details e.g. 
SEC(2011)1102,  p  52  (method:  Devereux-Griffith  methodology,  sources:  ECB  (2010),  BIS  quarterly  Review 
June 2011). Assuming that other sources of financing (such as the retained earnings of listed companies) were 
also affected by the tax, this ratio could rise to about 20 to 40%. 
65 For more details see ECFIN(2012) – Securities Transaction Taxes: Macroeconomic Implications in a General-
Equilibrium Model (economic paper by Rafal Raciborski, Julia Lendvai, Lukas Vogel). 

45 

 
 
                                                            
0.4% of GDP.66 Thus, in the case FTT tax revenues are used for productive public investment, 
the  net  effect  of  introducing  FTT  on  the  long  run  level  of  GDP  (i.e.  the  deviation  from  a 
scenario without the tax of the level of GDP after about 40 years) would be expected to be in 
the range between -0.1 and 0.1 percentage points. 

For  some  countries,  notably  those  with  an  unsustainable  debt-to-GDP  ratio,  using  the 
revenues  from  the  FTT  for  debt  reduction  might  be  economically  most  promising,  as  this 
would have direct and very positive knock-on effects on business and consumer confidence in 
these  countries  and  on  bringing  down  interest  rates  and  interest  burdens  for  both  the  public 
sector and the real economy. 

Macro-economic effects of the tax could also be definitely positive if one took into account 
fairness and redistribution effects, which can typically not be modelled. Indeed, the objective 
that the tax should ensure that the financial sector makes a fair and substantial contribution to 
covering the cost of the crisis is not only based on efficiency grounds, i.e. those that benefit 
from the provision of a public good (rescue operations) should also be those that should pay 
for  it  (principle  of  fiscal  equivalence).  This  objective  is  also  linked  to  the  aim  of  closing  a 
fairness  gap.  For  as  long  as  this  gap  was  perceived  of  not  having  been  (sufficiently)  closed 
and, thus, others would continue having to shoulder the burden, there remains the underlying 
risk of social tensions, general strikes and political instability. Each working day lost (e.g. due 
to  a  general  strike)  implies  a  substantial  cost  for  the  economy  which,  depending  on  the 
country, can be estimated between 0.05 to 0.2% of its GDP.    

The fact that the FTT is now supposed to be introduced at the level of EU11+ instead of EU27 
does  not  change  the  picture  with  respect  to  the  economics  and  the  growth  and  jobs 
performance  in  non-participating or participating Member States. The reason  for  this is that 
the  underlying  mechanisms  of  macroeconomic  relevance  (a  modest  increase  in  the  cost  of 
capital on the one side and additional public revenues on the other) net themselves largely out. 

Thus, there is no measurable negative effect identified for growth and jobs in the participating 
Member States, and a positive effect on jobs and growth in participating Member States is not 
unlikely. As regards other regions in the world, which would - under enhanced cooperation - 
also  comprise  non-participating  Member  States,  they  should  neither  suffer  from  a  negative 
nor should one expect a positive effect. The increase in the cost of capital in non-participating 
Member  States  of  developing  a  common  system  of  FTT  in  EU11+  should  at  most  be  a 
fraction of the (already rather tiny) assumed increase in the cost of capital in EU11+. On the 
other hand, however, non-participating Member States neither have additional tax revenues at 
their disposal which they could recycle in a growth-enhancing way. 

When engaging in transactions in financial instruments with the financial institutions and the 
client  base  in  the  FTT  jurisdiction,  transaction  costs  (including  taxes)  could  increase 
somewhat as a result of the introduction of an FTT for the financial institutions of both non-
participating  Member  States  and  the  rest  of  the  world.  This  might  trigger  some  changes  in 
business models and other market reactions, such as more intermediation instead of "spread 
internalisation",  deflating  excessive  market  volumes,  reducing  the  share  of  high-frequency 
trading in total turnovers and the frequency of risk hedging operations, or changing to other 
untaxed activities. 

66 European Commission, DG ECFIN (2012): Quarterly Review of the Euro Area. 

46 

 
 
                                                            
In case financial institutions of non-participating Member States were not able to pass this tax 
on  to  their  client  base  or  counter  parties  from  the  FTT  jurisdiction  this  might  eventually 
trigger  some  compression  of  rents  earned  in  the  past  with  such  transactions,  although  the 
expected  rates  of  return  of  the  individual  transactions  should  still  remain  positive.  Also,  it 
could  serve  as  an  incentive  to  improve  the  efficiency  of  financial  services,  e.g.  by  reducing 
transaction costs. 

None  of  this  should  have  negative  competitive repercussions  on  the  financial  institutions  of 
non-participating  Member  States  or  of  non-EU  countries.  After  all,  the  same  rules  would 
apply to every actor, independent of its country of establishment for as long as it interacted 
with an EU11+ client (or was involved in a transaction on a financial instrument issued in the 
FTT jurisdiction or taking place on the territory of a Member State of the FTT jurisdiction). 

Also,  and  due  to  its  size  and  attractiveness,  no  negative  effect  should  be  expected  on  the 
financial  capacity  of  the  EU11+  and  the  EU27  market.  While  the  economy  of  EU27 
constitutes about one quarter of global economic activity, the economy of EU11+ constitutes 
after  all  about  two  thirds  of  this  economy  and  more  than  90%  of  the  economy  of  the  Euro 
zone. This would make it look rather unattractive from a business perspective not to serve and 
interact with this market. Also, as the entire EU but also EU11+ can be characterised as large 
and  open  economies,  capital  flows  should  continue  to  go  in  both  directions,  and  the  capital 
and  current  account  balances  will  continue  to  be  determined  by  underlying  competitiveness 
performances and not by the levying of an FTT on the trading in financial instruments. 

6.7  Other (micro-)economic effects 

Experience with other taxes on financial transactions invites for the conclusion that the costs 
of administering the common system of FTT in EU11+ can be expected to be very subdued 
both for tax administrations and taxable persons, once the IT systems are up and running. The 
cost  of  administering  e.g.  the  UK  Stamp  Duty  is  reported  to  be  about  0.1%  of  the  revenue 
collected.67 This compares very favourably with the collection of other major taxes, such as 
VAT  or  income  taxes.  The  reason  for  this  is  that  almost  all  transactions  are  carried  out 
electronically;  information  is  collected  and  processed  by  clearing  houses  and  regulatory 
authorities,  and  must  be  kept  by  financial  institutions  for  some  years,  thus,  facilitating  tax 
audits  and  enforcement.68  If  one  took  the  UK  Stamp  Duty  collection  cost  as  also  being 
representative for the EU11+ FTT, and even when correcting for the fact that the number of 
trading  platforms  and  other  actors  will  be  higher  in  EU11+  than  in  the  UK,  the  costs  of 
administering the common system of FTT in EU11+ should be in the order of magnitude of 
about EUR 50 to 150 million annually in case it was implemented centrally. However, in case 
of un-coordinated decentralised and national solutions the costs might be significantly higher.  

Also, experience in countries having introduced such a system shows that the setting-up cost 
of  the  relevant  IT  systems,  especially  when  trading  platforms,  central  counter  parties  and 
clearing houses are involved, remain very limited. 

Finally, the administrative burden in its more narrow sense, i.e. the provision of information 
by the regulated industry (financial sector) to public administrations (tax authorities) can be 

67 IMF/Brondolo (2011). 
68 See chapter 8 for more details. 

47 

 
 
                                                            
assumed  to  be  very  negligible,  as  all  relevant  information  will  have  to  be  transmitted  to 
regulatory  authorities  already  in  different  other  contexts  (notably  in  the  context  of  new 
financial market regulation that aimed at increasing transparency on the relevant markets). 

Financial operators not only from the participating Member States but also from outside will 
also  benefit  from  the  simplification  inherent  to  the  harmonised  regime  applicable  by  all 
participating  Member  States,  as  opposed  to  a  scenario  of  diverging  non-harmonised  FTT 
regimes. 

Concerns  have  been  raised  that  a  common  system  of  FTT  in  Europe  might  undermine  the 
competitiveness position of the European financial sector and its institutions and might, thus, 
trigger massive layoffs, notably in financial centres specialised on the new form of investment 
banking.  Already  the  initial  impact  assessment  has  shown  that  these  concerns  are  largely 
unfounded, as the transactions potentially most negatively affected (such as automated high-
frequency trading) are already not very labour intensive. 

Moreover, the potential labour market effect in financial centres also depends on the business 
strategies of the institutions affected, i.e. the effects of the tax – if not passed on to clients – 
could be absorbed by reduced (but still positive) margins, reductions in salaries (notably so-
called  bonus  payments)  or  other  measures  changing  business  models.  In  the  start-up  phase, 
jobs  might  even  be  created  that  aim  at  optimizing  IT  systems  and  developing  new  business 
models that step in for reduced turnovers in taxed market segments. 

On  balance,  however,  no  negative  employment  effects  are  to  be  expected  for  the  entire 
economy  of  the  FTT  jurisdiction,  as  the  recycling  of  FTT  revenues  will  trigger  demand  in 
sectors outside the financial services industry. 

As regards the (micro-economic and competitiveness) effects of an FTT on individual sectors 
of  the  non-financial  economy  such  as  the  energy  sector,  manufacturing  industry,  the 
construction  sector,  services  or  small  and  medium-sized  enterprises  (SMEs)  in  general 
different  impacts  are  to  be  expected,  depending  on  the  sector  analysed  and  on  the  business 
model characterising a sector as regards activities on financial markets: 

•  For  some  sectors,  such  as  the  energy  sector,  the  investment  goods  industry  or  trade-
intensive  sectors  with  significant  trade  activities  outside  the  domestic  currency  area, 
hedging price and exchange-rate risks could become somewhat (about 0.01% of the price 
of the underlying) more expensive as a consequence of direct effects of an FTT of 0.01% 
on  derivatives  contracts.  On  the  other  hand,  the  positive  indirect  effects  from  squeezing 
out excessive intermediation or of "spread internalisation" should largely offset this direct 
effect; 

•  For those sectors and companies that finance their investment activities also with the help 
of issuing shares and enterprise bonds (on top of financing investment with the help of the 
cash-flow  generated  or  with  the  help  of  traditional  –  and  tax  free  -  enterprise  loans 
provided by the financial sector), the cost of capital might edge up as well due to higher 
transaction costs on the secondary markets for these securities. Model simulations hint at 
an  increase  by  about  7  basis  points.  But  also  here,  the  positive  indirect  effects  from 
squeezing  out  "excessive"  financial  intermediation  or  of  "spread  internalisation"  should 
largely offset this direct effect; 

48 

 
 
•  Finally, it is safe to assume that SMEs will not be negatively affected by the FTT, as all 
financial transactions typical for SMEs are out of scope of the common system of FTT. In 
case an SME intended to hedge itself certain price, interest rate or currency risks, it might 
be slightly affected. But here, as in the case of the other sectors, the negative and positive 
effects should largely offset each other. 

Thus and on balance, the competitiveness of the non-financial sector should not be negatively 
affected  by  the  common  system  of  an  FTT.  Neither  should  the  innovative  or  productivity 
performance  of  non-financial  companies,  be  they  large  global  players  or  be  they  SMEs,  be 
negatively  affected.  On  the  contrary,  as  the  relative  attractiveness  of  investing  in  financial 
instruments will edge down as compared to investing in the real economy some of the capital 
presently  locked  in  financial  market  activities  might  be  re-channelled  to  finance  additional 
investment in the real economy.  

49 

 
 
7.  COMPARING THE DIFFERENT POLICY OPTIONS 
The  impact  assessment  having  accompanied  the  initial  proposal  of  September  2011  has 
clearly shown that in the absence of coordinated EU action, none of the objectives of taxing 
the financial sector would be met. In other words, solely relying on un-coordinated national 
action would lead to a plethora of different national systems to tax the financial sector, thus, 
undermining the proper functioning of the Single Market, triggering numerous incidences of 
double taxation and – more importantly – of double non-taxation despite the overarching aim 
of ensuring that the financial sector makes a fair and substantial contribution to financing the 
costs  of  the  crisis.  No  tax  neutrality  amongst  different  products,  market  places  and  actors 
would materialise, and it would be easy for actors to design their transactions, especially the 
more mobile ones, so that no tax would be due. In consequence, the potential revenue stream 
would  be  rather  small  and  tiny  (potentially  except  for  countries  hosting  important  financial 
centres), and taxation would hardly contribute to strengthen the effectiveness of regulation to 
discourage  activities  that  do  not  improve  the  functioning  and  stability  of  financial  markets 
while at the same time inviting for myopic behaviour and rent seeking. 

Against  this  benchmark  and  in  the  absence  of  a  global  solution,  a  common  system  of  a 
Financial  Transaction  Tax  (FTT)  for  EU27  as  proposed  by  the  Commission  in  September 
2011 (option B) would perform very positively in all dimensions (see table below). It would 
have been able to avoid any kind of double taxation or double non-taxation within EU27, to 
design  the  tax  in  a  way  that  it  is  neutral  across  all  actors,  all  markets  and  all  instruments. 
Thanks  to  its  broad  base  and  powerful  anti-relocation,  anti-evasion  and  anti-avoidance 
features a EU27 common system would have allowed to make sure that the financial sector 
makes a fair and substantial contribution to financing the costs of the crisis, while at the same 
time  discouraging  some  of  the  activities  that  do  not  improve  the  functioning  or  stability  of 
financial markets. 

However, the option of establishing a common system of FTT for EU27 was not possible for 
political  reasons  and  will  not  be  possible  to  be  achieved  in  the  foreseeable  future.  Thus,  11 
Member States representing about two thirds of the entire EU27 economy, have requested to 
be allowed to go ahead  under enhanced cooperation  (option  C) and based on the objectives 
and scope of the initial Commission proposal. While not being as effective as the same policy 
implemented  at  the  level  of  EU27  (it  will  not  be  possible  to  avoid  all  incidents  of  double 
taxation within the entire EU27 for as long as not all Member States will have joined the FTT 
jurisdiction,  and  also  the  anti-relocation  /  anti-evasion  provisions,  albeit  still  being  very 
powerful,  will  be  a  little  bit  less  effective  than  the  same  FTT  under  an  EU27  regime)  a 
common  system  of  FTT  at  the  level  of  EU11+  will  constitute  a  major  improvement  as 
compared to the baseline scenario. 

Under the Danish Presidency, several sub-options of the FTT had also been discussed in the 
six meetings of the Council Working Party. At that time these discussions took place under 
the assumption that the common system of FTT would be applied at the level of EU27 and 
not  at  a  subset  of  Member  States.  However,  the  same  discussions  might  pop  up  in  the 
discussions at the subset of Member States as well. The different variants discussed could be 
clustered in the following four sub-options: 

•  permanently exempting from the scope of the directive certain financial instruments, such 

as the issue of shares in UCITS or AIF or repo agreements (sub-option C.1); 

50 

 
 
 
•  permanently  exempting  from  the  scope  of  the  directive  certain  actors,  such  as  the 
managers of public debt, regional development banks, the activities of pillar II and pillar 
III  pension  funds,  so-called  "  internalisers"  such  as  market  makers,  broker-dealers  and 
proprietary traders (sub-option C.2); 

•  strengthening  the  anti-relocation  features  of  the  common  system  by  complementing  the 
residence principle with elements of the issuance principle and changing the regional tax 
incidence by altering the order of criteria also determining the assignment of the power to 
tax of the different Member States (sub-option C.3), and 

• 

introducing the common system only gradually, i.e. temporarily exempting certain actors, 
markets and products and broadening the tax base only successively (sub-option C.4). So, 
it might take several years until the scope and objectives as proposed by the Commission 
in its initial proposal will have been implemented. 

The analysis of the impacts of different policy options carried out in chapter 6 has found that 
both, option C and the four sub-options analysed would still feature better than the baseline 
scenario  of  doing  nothing  on  all  dimensions  (as  indicated  by  the  “+”  symbols  in  the  below 
table, except for the criterion "anti-evasion", as in such a case non-taxation of the most mobile 
tax bases might turn out to be the dominant pattern of national tax regimes. However, only the 
sub-option  C.3  would  feature  as  well  or  even  better  (with  respect  to  its  revenue-raising  and 
anti-relocation  characteristics)  than  the  initial  Commission  proposal  adjusted  for  EU11+ 
(option C). 

However, the analysis of chapter 6 (namely sections 6.2 to 6.5) also invites for the conclusion 
that some of the more tailored measures in the sub-options C.1 to C.3 (the measures shaded in 
grey  in  the  table)  should  be  considered  for  adoption,  while  sub-option  C.4  (phasing  in  of  a 
fully-fledged  FTT)  would  come  with  significant  shortcomings  as  compared  to  the 
establishment in one go of a common system of FTT covering all products, all actors and all 
markets. 

Thus, given the impossibility of establishing a common system of FTT at the level of EU27, 
and  in  the  light  of  this  analysis  of  policy  options  and  impacts,  the  most  promising  policy 
might  be  to  introduce  the  common  system  as  proposed  by  the  European  Commission  in 
September 2011, but at the subgroup of 11 Member States under enhanced cooperation, while 
adjusting and complementing it with the following elements of sub-options C.1, C.2 and C.3: 
•  exclude the issue of units and shares of UCITS and AIF from the scope of the directive so 

as not to run the risk of taxing the raising of capital; 

•  exclude the managers of public debt from the scope of the directive so as not to interfere 

with their activity of smoothing the market; 

•  add elements of the issuance principle, and complement the "authorisation" criterion so as 
to  close  a  potential  loophole  under  enhanced  cooperation,  thus,  strengthen  the  anti-
relocation features of the proposal. 

It could be left to the outcome of negotiations amongst participating Member States to what 
extent they want to alter the order of criteria determining the Member State of establishment 
as well as the regional tax incidence, especially when they agreed on what all of them could 
consider as being a fair revenue-sharing system. 

51 

 
 
 
 
 
Table 2: Comparing the different policy options* 

Single 
Market 

Tax 
neutrality

Anti-
relocation/ 

evasion 

Potential 
additional 
revenue 

Discouraging 
excessive risk 
taking, rent 
seeking, myopic 
behaviour 

0 

++ 

++ 

++ 

++ 

++ 

Baseline (no action) 

Option C 
(FTT at EU11) 

Sub-option C.1 
(EU11, but permanently 
exempting instruments) 

UCITS/AIF 

Public debt 

Repos 

Derivatives 

Sub-option C.2 
(EU11, but permanently 
exempting actors) 

0 

+++ 

++ 

++ 

++ 

0 

Managers of public debt 

++ 

+++ 

+ 

+ 

+ 

++ 

+ 

++ 

0 

++ 

+ 

++ 

+ 

0 

++ 

+ 

+ 

+ 

0 

+++ 

++ 

++ 

+++ 

+ 

+++ 

+++ 

+ 

++ 

0 

++ 

++ 

++ 

++ 

0 

++ 

++ 

0 

+ 

Development banks 

"Internalisers" 

Pension funds 

Sub-option C.3  
(EU11, but modifying 
criteria in Art.4) 

Add elements of the 
issuance principle 

Change the order or 
criteria 

Re-establish the power 
of the "authorisation" 
criterion 

Sub-option C.4 
(EU11, but step by step 
/temporary exemptions) 

++ 

+++ 

++ 

+++ 

+++ 

./. 

./. 

./. 

./. 

./. 

++ 

+++ 

++ 

+++ 

+++ 

++ 

+ 

+ 

0 to +++ 

0+ 

* The effects are for within EU11+, as compared to the baseline scenario of non-action. 

52 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8. 

IMPLEMENTATION, MONITORING AND EVALUATION 

8.1 

Implementation 

The proposal for a Directive implementing enhanced cooperation in the area of FTT does not 
regulate the details of tax collection; it only sets out the basic rules and framework. Typically, 
the  Member  States  are  provided  with  a  large  room  of  manoeuvre  among  other  things  to  be 
able  to  adapt  tax  collection  to  national  systems  and  to  respect  the  proportionality  principle. 
Further  work  with  the  help  of  the  Commission  on  the  basis  of  various  national  experiences 
should, however, be seriously considered so as to ripe all the advantages of this Single Market 
initiative, including those of a cost-effective implementation across countries. 

8.1.1  Basic rule 

Under  enhanced  cooperation  the  FTT  due  should  be  paid  by  the  financial  institution(s) 
involved  in  a  financial  transaction.  It  appears  that  this  used  to  be  the  preferred  solution  in 
most Member States that have an FTT in place69. 

These  financial  institutions  are  subject  to  data  maintenance  obligations  either  under  the 
MiFID-related legislation or under the proposal implementing enhanced cooperation in order 
for the competent tax authorities to check the correct payment of the tax. Furthermore, every 
financial institution liable to pay the tax would need to be properly registered.  

The FTT due must be paid to the national tax authorities or to an account determined by the 
participating  Member  States  at  the  moment  of  the  transaction  in  case  it  is  carried  out 
electronically  or  within  three  working  days  from  that  moment  in  other  cases.  Additionally, 
under the proposal a tax return would have to be submitted to these authorities by the tenth of 
the  month  following  the  month  during  which  FTT  became  chargeable.  As  a  rule,  these 
obligations hold for both EU established and non EU established financial institutions which 
are liable to pay the tax.  

The  next  section  on  monitoring  and  enforcement  provides  more  information  on  the  data 
maintenance  obligations  and  on  the  need  for  administrative  cooperation  between  States  to 
monitor  payment  of  the  tax.  For  countries  that  do  not  have  an  FTT  already  in  place,  laws 
would have to be passed, systems implemented and people employed to operate it; there will 
be costs associated with both the initial efforts and the on-going operation of the systems70. 

8.1.2  Other means to collect 

Each party to the (taxable) financial transaction becomes jointly and severally liable for the 
payment of the tax due by a financial institution on account of that transaction, in case that 
financial institution has not timely paid the tax (safety net). Also, Member States may provide 
that other persons can be held jointly and severally liable for the payment of the tax. Member 

69  See  FISCO  –  The  fiscal  compliance  experts'  group  (2007)  second  report  –  solutions  to  fiscal  compliance 
barriers related to post-trading within the EU, p. 6. 
70  See  the  IMF  working  paper  of  John  Brondolo  (2011)  –  Taxing  financial  transactions:  an  assessment  of 
administrative feasibility, p. 14. 

53 

 
 
 
                                                            
States would thus have the right to organize tax collection by other means than set out above 
under the basic rules of the proposal. They could for instance use exchanges/organized trade 
venues or platforms to pay the tax in case of financial instruments traded on such platforms, 
alternatively they could use central clearing parties to pay the tax, especially because the use 
of  these  central  counterparties  will  become  more  generalized  and  average  collection  costs 
would  be,  in  general,  lower.  Member  States  can  assess  which  systems  of  tax  collection  are 
most appropriate depending on their organization of markets and infrastructure. 

Arrangements  would  need  to  be  set  up  for  (cross  border)  cases  which  involve  financial 
institutions in the transaction that are (deemed to be) established in different Member States, 
because the (central) tax collection point would have to pay the FTT due (at both sides of the 
transaction) to different national tax authorities. This is a normal tax administration procedure 
and subject to subsidiarity. However, it might also be envisaged to go for an implementing act 
by  the  Commission  so  as  to  guarantee  an  uniform  and  cost-effective  implementation  across 
the participating Member States. 

It is logical that also these central tax collection points would have to be registered and to file 
tax returns. However, it would need to be analysed if it is possible for them to immediately 
pay the FTT due to the national tax authorities in case of electronic transactions, or whether 
they themselves should transfer the money at a lower frequency. 

FTT payment on pure OTC (over-the-counter) transactions would of course still have to rely 
upon  the  basic  rules  of  tax  collection  (payment  by  the  financial  institution  involved  in  the 
transaction). This is why it is essential to levy the tax on both legs of the transaction71. Where 
OTC  transactions  are  cleared  and  settled  through  a  clearing  house,  the  tax  could  be  again 
collected using this central point. This could be the case, for example, for bond trading which 
–  in  many  countries  –  is  regulated  to  a  certain  extent.72  Otherwise,  also  securities  dealers 
could be used in practice to collect the tax, like it is the case in Switzerland73. 

Arrangements would also have to be established for recognizing the correct person liable to 
pay  in  case  of  financial  institutions  transacting  in  the  name  or  for  the  account  of  another 
financial  institution  (in  which  case  only  the  originator  is  liable).  Adding  elements  of  the 
issuance principle on top of the residence principle could even add up to the complexity. 

In  conclusion,  in  assessing  the  advantages  and  disadvantages  of  different  collection 
philosophies,  Member  States  should  differentiate  between  (1)  transactions  carried  out  at 
exchanges,  where  –  unless  the  burden  falls  on  parties  or  intermediaries  –  using  central 
clearing  houses  could  prove  to  be  a  cost  effective  solution  and  (2)  other  transactions,  e.g. 
carried out over-the-counter, where the burden could also fall on parties and intermediaries or 
on the clearing houses used. However, the interaction between the Commission proposal for a 
Directive implementing enhanced cooperation in the area of FTT and the functioning of the 

71 See IMF/John Brondolo – op. cit, p 14. 
72 See IMF/John Brondolo – op. cit, p. 20. 
73  Securities  dealers  are:  (a)  Swiss  banks, brokers,  and asset  managers,  (b)  among  others,  Swiss  companies or 
Swiss branches of foreign companies that hold taxable securities with a book value of more than CHF 10 mn. in 
their 
and 
http://www.efd.admin.ch/themen/steuern/index.html?lang=fr.   

http://www.admin.ch/ch/f/rs/64.html#641.1 

balance 

details, 

sheet. 

visit 

For 

54 

 
 
                                                            
central counterparties need to be assessed thoroughly (e.g. in terms of chargeability, cancelled 
transactions, identification of the person liable to pay the tax etc.). 

8.2  Monitoring 

Taxing financial transactions is one of the least expensive ways of collecting taxes, as most 
transactions are carried out electronically and the tax can be collected electronically and at the 
source.  FTT  can  be  collected  at  very  low  cost  (less  than  1%  of  the  foreseen  revenue), 
especially when good use can be made of existing market infrastructures, e.g. with the help of 
trading platforms, trade repositories or clearing houses.74 

Nevertheless, concerns have been raised that the tax as proposed would be hard to implement 
and to enforce as data availability is limited. However, the following sections highlight that 
the  already  existing  "Markets  in  Financial  Instruments  Directive"  (MiFID)75  and  the 
"European Market Infrastructure Regulation" (EMIR) would allow for the payment of the tax 
to be properly ensured and monitored. These pieces of legislation are to be complemented by 
the provision for "joint and several liability" as foreseen in Art. 10.3 of the proposal, and that 
should also encourage voluntary compliance. 

8.2.1  Data maintenance and place of keeping at the disposal of data 

Pursuant  to  Art.  25(2)  of  the  current  Markets  in  Financial  Instruments  Directive  (MiFID) 
investment  firms  and  credit  institutions  are  obliged  to  keep  relevant  data  relating  to  all 
transactions  in  financial  instruments  (including  OTC  transactions)  which  they  have  carried 
out, whether on own account or on behalf of a client. In the case of transactions carried out on 
behalf of a client, the records shall contain all the information required to identify the client 
and information required to prevent the use of the financial system for money laundering. The 
data have to be kept at the disposal of the competent (MiFID) authority for at least five years. 
It is not mentioned where the data is to be kept, but the competent authority referred to should 
normally be that of the home Member State which authorises the performance of investment 
services and activities under MiFID.  

The  home  Member  State  as  a  rule  is  the  State  where  the  head  office  is  situated  (natural 
persons) or in which its registered office (legal persons) is situated (Art. 4(20) of the MiFID). 
Consequently, the information should be easily available in the Member State of authorisation 
(head office, registered seat). 

Some persons, such as (in principle) those only dealing on their own account (unless they are 
market  makers  or  deal  on  own  account  outside  a  regulated  market  or  a  multilateral  trading 
facility (MTF) on an organised, frequent and systematic basis) are not subject to the MiFID. 

In  order  to  avoid  possible  lacuna,  Article  11  of  the  proposal  for  a  Directive  implementing 
enhanced cooperation in the area of FTT provides for the (tax) obligation that where financial 
institutions are not subject to Article 25(2) of the MiFID they shall keep at the disposal of the 
competent authority, i.e. the tax authority, for at least five years, the relevant data relating to 
all  financial  transactions  which  they  have  carried  out,  whether  in  their  own  name  or  in  the 
name of another person, for their own account or for the account of another person. Member 

74  See  IMF/  John  Brondolo  (2011)  –  op.  cit.,  The  Dutch  Planning  Bureau/CPB  (2011)  -  An  evaluation  of  the 
financial transaction tax. 
75 The Directive 2004/39/EC is currently in the process of being reviewed by the co-legislator. 

55 

 
 
                                                            
States  will  be  required  to  ensure  that  financial  institutions  comply  with  this  obligation.  In 
view of the above it would be logical that this ("tax") information is kept and readily available 
in the Member State of authorisation of the financial institution (if applicable) or of its head 
office/registered seat. This applies per separate legal entity. 

Financial institutions with a registered seat or head office located outside the EU but with a 
branch in a Member State of the EU will normally be authorised as a financial institution by 
that Member State under national regulations. In that case, the above principles remain valid. 
In case of multiple branches in the EU, different Member States will be involved and data per 
branch is to be kept in the Member State of the branch. 

Financial institutions which do not have any seat or branch in the EU11+, but are deemed to 
be established in a Member State of the EU11+ pursuant to Art. 4.1 (e) of the proposal for a 
directive  implementing  enhanced  cooperation  in  the  area  of  FTT  –-  because  of  transactions 
with  an  EU11+  established  party  or  because  they  are  acting  in  the  name  of  a  party  to  a 
transaction  with  an  EU11+  established  party  –-  will  need  to  be  registered,  and  keep 
transaction  data  at  the  disposal  of  the  competent  tax  authorities,  in  the  Member  State  of 
establishment of that latter party (cf. Art. 11 of the proposal).  
It  is  also  to  be  noted  that  the  new  MiFID  II  and  MiFIR76  legislative  proposals  envisage 
creating  a  harmonised  framework  for  granting  access  to  EU  markets  for  businesses  and 
market operators based in third countries in order to overcome the current fragmentation into 
national  third  country  regimes  and  to  ensure  a  level  playing  field  for  all  financial  services 
actors  in  the  EU  territory.  Harmonised  rules  for  third  country  investment  firms  with  or 
without an EU branch will be provided for. 

8.2.2  Reporting obligations under MiFID and EMIR 

Pursuant  to  Art  25(3)  of  the  current  MiFID  Member  States  shall  require  investment  firms 
which  execute  transactions  in  any  financial  instruments  admitted  to  trading  on  a  regulated 
market to report details of such transactions to the competent authority as quickly as possible, 
and no later than the close of the following working day. This obligation applies whether or 
not such transactions were carried out on a regulated market.  

According to Art. 54(5) of the MiFID, that Directive does not prevent competent authorities 
from  exchanging  or  transmitting,  in  accordance  with  national  law,  confidential  information 
that has not been received from a competent authority of another Member State. 

Furthermore,  the  European  Market  Infrastructure  Regulation  (EMIR)  stipulates  that 
counterparties  (financial  and  non-financial)  and  central  counterparties  (CCPs)  shall  ensure 
that the details of any (OTC) derivative contract they have concluded and any modification, 
or  termination  of  the  contract  is  reported  to  a  trade  repository  or,  in  the  absence  of  such  a 
repository,  to  the  European  Securities  Markets  Authority  (ESMA).  A  trade  repository  shall 
maintain it for at least ten years following the termination of the relevant contracts and shall 
make  the  necessary  information  available  to  relevant  supervisory  authorities,  including 
ESMA. Where a trade repository is not available to record the details of a derivative contract, 
counterparties and CCPs shall ensure that the details of the derivative contract are reported to 
ESMA. A CCP shall maintain, for a period of at least ten years following the termination of a 
contract it has processed, all information on that contract.  

76 Markets in Financial Instruments Regulation. 

56 

 
 
                                                            
The  recital  (58)  of  EMIR  states  that  "For  the  exchange  of  information,  strict  professional 
secrecy  is  needed.  It  is  essential,  due  to  the  wide  impact  of  OTC  derivative  contracts,  that 
other  relevant  authorities,  such  as  tax  authorities  and  energy  regulators,  have  access  to 
information necessary to the exercise of their functions." 

It  would  seem  appropriate  to  provide  in  national  law  for  access  to  data  held  by  competent 
(supervisory) authorities, trade repositories, CCPs, trading venues and ESMA in order for tax 
authorities to be able to use these data for possible cross checking.  

8.2.3  Administrative cooperation 

For  tax  monitoring  purposes,  Member  States  will  have  to  ensure  well-functioning 
administrative cooperation both at national and European/international level. Data available at 
one  side  of  the  transaction  should  be  provided  to  the  tax  authority  competent  for  the 
monitoring  of  the  tax  payment  at  the  other  side  of  the  transaction.  From  an  EU  and 
international  perspective,  the  administrative  cooperation  tools  in  place  will  need  to  be  used 
effectively. To this end, Council Directive 2011/16/EU of 15 February 2011 on administrative 
cooperation in the field of taxation and repealing Directive 77/799/EEC could be used as from 
the entry into force of the FTT Directive. 

In principle, the current scope of Directive 2011/16/EU is broad enough to include FTT, as an 
FTT is not covered by the exception in Article 2.2 (i.e. it is not value added tax or an excise 
duty). This means that apart from the automatic exchange of information, all mechanisms of 
the  Directive  would  apply  to  the  tax,  i.e.  exchange  of  information  on  request,  spontaneous 
exchange  of  information;  presence  in  the  offices  where  the  administrative  authorities  of 
another  Member  State  carry  out  their  duties  or  presence  during  administrative  enquiries; 
simultaneous controls. Finally, FTT could also benefit from the sharing of best practices and 
experience provided by Directive 2011/16. 

As regards the automatic exchange of information, the Directive provides for the exchange of 
available  information  in  respect  of  a  number  of  defined  categories  from  1  January  2015 
regarding  taxable  periods  as  from  1.  January  2014.  These  do  not  include  financial 
transactions. However, the tax could be included at a later stage in the context of the review of 
the automatic exchange of information which is due to be submitted before 1 July 2017. 

As  regards  the  recovery  of  the  tax,  Council  Directive  2010/24/EU  of  16  March  2010 
concerning  mutual  assistance  for  the  recovery  of  claims  relating  to  taxes,  duties  and  other 
measures applies since 1 January 2012 and would be applicable to FTT.  

The use of the above mentioned EU administrative cooperation tool is outlined in Art. 11(3) 
of  the  FTT  proposal  implementing  enhanced  cooperation.  From  a  wider  international 
perspective, the Council of Europe/OECD Convention on Mutual Administrative Assistance 
in Tax Matters could be applicable to the tax given its very wide scope: it covers exchange of 
information on request, spontaneous exchange of information (for example in case one State 
has  grounds  for  supposing  a  loss  of  tax  in  the  other  State),  subject  to  mutual  agreement  or 
consultation:  automatic  exchange  of  information,  simultaneous  tax  examinations,  tax 
examinations abroad and finally, assistance in recovery and service of documents.  

Currently,  the  Convention  applies  to  Azerbaijan,  Belgium,  Denmark,  Finland,  France, 
Georgia, Iceland, Italy, Moldova, the Netherlands, Norway, Poland, Slovenia, Spain, Sweden, 
Ukraine,  the  United  Kingdom  and  the  United  States.  Some  other  countries  have  signed  as 
well, but there is no entry into force yet (Ireland, Korea, Mexico, Moldova, Portugal).  

57 

 
 
A number of additional countries (Argentina, Australia, Brazil, Canada, Germany, Indonesia, 
Japan, Russia, Turkey and South Africa) have signed the Multilateral Convention on Mutual 
Administrative Assistance in Tax Matters on 3 November 2011 in the margins of the Cannes 
G20  summit.  The  Cannes  G20  Summit  final  communiqué  mentioned:  "We  welcome  the 
commitment made by all of us to sign the Multilateral Convention on Mutual Administrative 
Assistance in Tax Matters and strongly encourage other jurisdictions to join this Convention. 
In this context, we will consider exchanging information automatically on a voluntary basis 
as  appropriate  and  as  provided  for  in  the  convention".  Recently,  Costa  Rica,  India  and 
Greece signed the Convention. 

8.2.4  Joint and several liability 

Where a financial institution which is liable to pay the tax on a transaction does not pay the 
tax due within the time limits set, each party to the transaction (including persons other than 
financial institutions) shall become jointly and severally liable for the payment of the tax on 
that transaction (Art. 10.3 of the proposal). This is not only an additional measure to ensure 
payment  of  the  FTT,  but  for  commercial  reasons  it  should  also  encourage  the  financial 
institution liable (in the first instance) to pay the amount of the tax due. Member States may 
also provide that other persons (e.g. advisors, intermediaries, law firms etc.) are held jointly 
and severally liable for the payment of the tax. 

8.2.5  Audit  

The implementation of the tax in the Member States will entail certain audit efforts of their 
tax  authorities.  First,  tax  payments  will  have  to  be  checked  against  tax  returns.  Second,  the 
information included in the tax returns will have to be checked against transaction data and 
cross-checked with other available data as explained before. It is obvious that IT procedures 
would  have  to  be  developed  possibly  on  an  EU-wide  basis  or  with  knowledge  sharing 
between  Member  States.  The  starting  point  would  be  to  put  in  place  an  accurate  register  of 
financial  institutions  established  in  the  territory  of  a  Member  State  by  using  the  data  of 
supervisory authorities and that on counterparties mentioned in records on transactions. The 
establishment  in  the  Member  States  of  dedicated  tax  audit  teams  which  have  or  acquire 
financial sector expertise seems to be an appropriate solution. 

In  top  50  banks  (according  to  strength)  of  the  Banker's  database77  there  are  19  credit 
institutions which have the headquarters of the banking group located in the EU. For example, 
it would be sensible to assume that significant financial transactions would be carried out by 
them and that in the EU/enhanced cooperation zone certain risks of avoidance can be assigned 
primarily  to  these  entities;  in  this  sense,  FTT  audits  could  be  carried  out  preferably  on  the 
trading activities of such financial institutions in the first place. 

8.3  Review 

With  developing  a  common  system  of  financial  transaction  tax  within  the  FTT  jurisdiction 
with a very broad tax base, also including very mobile tax bases, the European Union would 
to a certain extent enter untested ground. The more important will it be to closely monitor the 

77 The Banker Database/FT (2012), Top 50 banks in the world. 

58 

 
 
                                                            
effectiveness  of  the  common  system,  detect  unwanted  side  effects  (be  they  economic  or 
social) or new business models successfully circumventing the tax at large scale. 

Therefore,  it  should  be  envisaged  to  set  up  an  expert  group  with  participation  of  Member 
States,  the  European  Commission,  the  European  Parliament  as  well  as  stakeholders  and 
experts.  Such  an  expert  group  could  assist  the  Commission  in  the  preparatory  phase  of  the 
elaboration of the delegated acts provided for in the current proposal for a Directive (detailed 
rules for determining whether an undertaking carries out financial transactions in a significant 
way so it can be considered a financial institution for the purposes of this Directive, as well as 
more detailed rules regarding protection against tax evasion, avoidance and abuse). The group 
should  review  progress  or  lack  of  progress,  develops  solutions  to  potential  problems 
discovered and regularly reports back to the Council. It should also provide guidance on how 
to  fix  problems  discovered  and  to  –  if  necessary  –  propose  improvements  to  the  overall 
approach towards taxing financial transactions. 

*       * 

* 

59 

 
 
 
Annex 1: Taxes on transactions in financial instruments in the EU 

Disclaimer:  The  Commission  services  bear  sole  responsibility  for  this  publication  and  its  content.  It  is  based  on  the 
Commission services' interpretation and processing of the information obtained from Member States and Croatia as well as 
other sources as a reply to a questionnaire on the existence of forms of taxes on transactions in financial instruments in the 
EU. 

Based  on  the  replies  received  from  Member  States  (MS)  and  Croatia  and  on  various 
additional information such as the IA of FTT proposal and other sources (such as the IA of 
the COM  proposal for a  bank recovery and resolution framework in Europe –  SWD  (2012) 
166/3)78, it appears that different forms of indirect taxes on financial transactions or transfers 
of  various  assets,  including  financial  instruments  have  been  identified  in  11  Member  States 
(MS).  In  general,  all  these  national  taxes  have  a  more  restricted  scope  compared  to  the 
Commission's  proposal,  taxing  in  general  the  trading  in  shares  and,  in  some  cases,  bonds. 
Most of them do not cover derivatives (options are taxed in BE, CY, FI, FR, IE, MT, PL and 
UK  when  they  are  exercised  resulting  in  the  physical  delivery  of  the  underlying  securities) 
and some of them are rather in the form of a stamp duty or a transfer/registration tax (CY, FI, 
IE,  FR,  MT,  PL  and  UK).  All  the  countries  have  in  place  certain  exemptions  for  some 
financial institutions (e.g. domestic or foreign intermediaries, CCPs, CSDs) and/or for some 
particular  transactions  (e.g.  primary  market  transactions,  market  making,  transactions  with 
government  bonds,  intra-group  or  restructuring  operations  etc.).  It  appears  also  that  16  MS 
have bank levies in place. 

In  general,  for  securities  the  chargeability  is  triggered  when  the  transaction  is  carried  out 
(transfer  of  ownership  involved),  while  for  derivatives  it  is  the  moment  the  contract  is 
concluded. The time at which the tax is due to the tax authorities varies across countries, from 
"immediate"  liability  to  several  weeks;  in  many  instances,  the  moment  in  time  is  placed 
during the month following the month of the transaction. In some national systems, also rules 
on joint and severe liability apply. 

The large majority of indirect taxes on financial transactions are levied ad valorem; the only 
exception  is  LU,  who  levies  a  flat  tax  on  a  presumed  circulation  of  securities,  based  on 
changes  in  the  overall  assets  of  the  taxable  persons.  In  IT  also,  the  stamp  duty  is  levied  in 
some cases as a flat tax. Since only a few MS tax OTC transactions and the taxes are collected 
by using a central point such as the clearing house, they have not explicitly chosen to tax both 
parties.  Nevertheless,  in  practice  the  burden  of  the  tax  could  be  borne  by  either  or  both  the 
buyer  (who  pays  a  higher  after-tax  price)  and  the  supplier  (who  receives  a  lower  after-tax 
price).  The  tax  base  is  in  most  cases  represented  by  the  price  or  consideration  paid  for  the 
acquired securities. 

78 See http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm.  

60 

 
 
 
 
                                                            
Among the MS authorised to implement enhanced cooperation in the field of FTT, only three 
MS (BE, FR and EL) have already in place a form of FTT. From these countries, the BE and 
EL  systems  are  the  closest  ones  to  what  the  Commission  has  proposed  in  the  first  place, 
having in mind that they use of combination of criteria which includes the residence principle 
(for  BE  the  focus  is  rather  on  where  the  transaction  is  concluded  or  executed,  but  a 
professional intermediary needs to be involved to have a taxable transaction – this can be a 
non BE person if allowed to act on BE market), certain derivatives are taxed, both regulated 
and unregulated markets are covered (for BE: instruments need to be "public funds" meaning 
that  they  can  be  traded  on  a  public  exchange)  etc.  Nevertheless,  there  are  significant 
differences  in  terms  of  design  and  operation  of  these  national  systems.  FR  actually  taxes  a 
particular form of derivatives – the credit default swaps (CDS) on sovereign debt instruments, 
based  on  the  notional  value,  as  proposed  by  the  Commission.  In  November  2012,  the  IT 
government  submitted  a  proposal,  further  amended  in  December  2012,  to  implement  a 
national FTT based on a broad definition of the taxable base (derivatives and cancelled orders 
included)  and  the  principle  of  the  place  of  transaction.  This  tax  will  enter  into  force  as  of 
March  2013  (for  securities)  and  July  2013  (for  derivatives).  Two  other  MS  authorised  to 
implement enhanced cooperation in the field of FTT (ES, PT) are planning to introduce their 
own national form of FTT. 

A  larger  "population"  of  MS  having  a  form  of  FTT  in  place  is  not  interested  though  in 
entering the enhanced cooperation zone (CY, FI, IE, LU, MT, PL and UK). From this point of 
view, the harmonisation exercise would be relatively less effective, as the co-existence of the 
enhanced cooperation tax system and the national systems outside the enhanced cooperation 
zone  could  still  lead  to  issues  of  double  taxation,  for  instance,  when  a  share  of  a  British 
company is taxed both in the UK and in BE. 

61 

 
 
 
No. 

Member 
State 

1  Austria 
2  Belgium 

FTT and/or 
bank levy 
currently 
in place 
(Y/N) 

N80 
Y81 

Y 
Y 

3  Bulgaria 
4  Cyprus 

N 
Y 

N 
Y 

Type of 
FTT 

Tax base 

Exemptions 

Tax rates  

Stock 
exchange 
transaction 
tax 

Any purchase or sale of 
(Belgian or foreign) 
securities carried out or 
concluded in Belgium, on 
both regulated and 
unregulated markets 

Primary market transactions, 
trading on own account, 
market making, trading by 
CCPs and CSDs 

Stock 
exchange 
transaction 
tax 

It applies to financial 
institutions licensed to 
operate in CY. It applies 
to transactions carried out 
with all types of securities 
excluding company bonds 
at the CY Stock Exchange 

OTC trade is not covered. 
Certain types of transactions 
specified by the law e.g.  
repurchase of own shares, 
government bonds etc. are 
exempted 

0.25% and, and 0.09% for 
Belgian or foreign sovereign 
bonds and bills etc., company 
bonds,  units in UCITS and 
AIFs; 1% for the secondary 
market of units/shares of an 
UCITS and AIFs and for their 
redemption 

0.15% 

Are 
derivati
ves 
taxed? 
(Y/N) 

Revenues (EUR 
mn.) / Share of 
FTT revenue in 
GDP (%) 79 

Y  

132.00 

0.04 

Taxation 
principle(s) 
used 

Place of 
transaction 
principle 

Y 82 

1.4 

0.01 

Place of 
transaction 
principle 

5  Czech 

Republic 
6  Denmark 
7  Estonia 
8  Finland 

N 

N 

N83 
N 
Y 

Y 
N 
Y84  Transfer tax  The tax covers 

transactions in shares 
issued by companies 

Primary market transactions 
are exempted. If neither party 
to the transaction is resident 

1.6% 

Issuance & 
residence 
principles 

Y 

249.0085 

0.13 

79 Gross Domestic Product, market prices, 2011 data (source: Eurostat). 
80 AT only has a capital duty in place. It needs to clarify though whether transfers of financial instruments within a group (against consideration) are covered by this capital 
duty (e.g. transfer of a company's seat to Austria). If so, than this would be similar to the provision in Art. 2.1(1) (b) of the FTT proposal. 
81 BE also taxes exchange traded derivatives (futures, options etc.). 
82 Only upon physical delivery (e.g. options). 
83 DK appears to have a stamp duty on insurance policies, soon to be replaced by an insurance premium tax. 

62 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
9  France 

Y86 

Y 

Transaction 
tax on 
shares and 
naked CDS 

resident in Finland. 
Shares and interim 
certificates of share 
issues, certificates of 
participation, bonds or 
other certificates of claim 
issued by a corporate 
body, letters of right of 
subscription and 
electronic book entries in 
a computerised trading 
system 
The acquisition of French 
shares issued by a 
company whose market 
capitalization exceeds 
EUR 1 bn., high 
frequency trading tax 
(cancelled orders above a 
certain threshold) and 
naked sovereign credit 
default swaps (CDS) 

Registration 
duty 

All (listed and unlisted) 
corporate entitlements 
sold in FR are submitted 
to the registration duty 
tax. Moreover, the sales 
of FR corporate 

(fiscally) in Finland, or it 
involves a Finnish branch of a 
foreign financial institution, 
the tax is not levied 

For the tax on the acquisitions 
of French shares: primary 
market, CCPs and CSDs 
(except transactions realised 
on their own account), market 
making; intragroup and 
restructuring operations, 
temporary transfer of 
securities, employee savings, 
convertible and exchangeable 
bonds. For the high frequency 
trading tax and the naked 
sovereign CDS tax, only the 
market making is exempted. 
Exemptions for: intra-group 
operations, when the 
corporate entitlements are 
bought back the company 
which issued it, when the 
corporate entitlements are 

84 FI plans to introduce a bank levy as of 2013 were already included in the draft budget for 2013. 
85 Calculated as an average over the last five years. 
86 A FTT is in place from 1/08/2012. A registration duty was in place already before. 
87 Estimates for the transaction tax. Revenue figures for the transfer duty are not available. 

63 

0.2% for the acquisitions of 
French shares; 
0.01% for the high frequency 
trading tax and the naked 
sovereign CDS tax. 

Issuance & 
residence 
principles 

Y 

1100.087 

0.06 
N/A 

3% when the price of the 
shares is no more than  
EUR 200 000, 0.5% if the 
price is contained between 
EUR 200 000 and EUR 500 
000 000 and 0.25% if the 

Place of 
transaction 
principle 

N 

N/A 

 
 
 
                                                                                                                                                                                                                                                                                              
10  Germany 
11  Greece 

N 
Y88 

Y 
N 

Stock 
exchange 
transaction 
tax 

price exceeds  
EUR 500 000 000. The rates 
will be of 0.1% from the 1st 
of august 2012; 
3% of the price of the shares 
in companies where the 
capital is not divided into 
stock; 
5% of the price of the shares 
in companies where property 
buildings owned by the 
company represent more than 
50% of the balance sheet 

0.2% 

entitlements taking place 
abroad are also submitted 
to the tax. 

issued by companies which 
are going into administration, 
when the corporate 
entitlements are issued by 
companies which are 
members of an integrated 
fiscal group and when the 
corporate entitlements are 
issued by companies which 
are undergoing a partial asset 
transfer 

Sale of shares listed in the 
Athens stock exchange 
(ASE), sale of shares 
listed in foreign stock 
exchanges or other 
internationally recognized 
stock exchange 
institutions by EL tax 
residents or enterprises 
established in EL, 
OTC transactions and 
transactions made through 
multilateral negotiations 
mechanism. 

The tax does not apply to 
sales of shares listed on the 
ASE regarding transactions 
conducted by market makers 
of ASE and by market makers 
of Athens Derivatives 
Exchange (ADEX) to cover 
risks arising from the 
implementation of market 
making obligations, provided 
such sales are cleared through 
a special code maintained on 
their behalf by the CSD 

N89 

92.0083 

0.04 

Place of 
transaction 
& residence 
principles 

12  Hungary 
13 

Ireland 

N 
Y 

Y 
Y 

Stamp duty 

Transfers of stocks or 
marketable securities 

1% 

Intermediaries, central 
counterparties (CCPs), stock 
borrowing; intra-group 
transfers, 
mergers/reconstructions/ 
amalgamations, American 
Depositary Receipts (ADRs); 

Issuance 
principle 

Y80 

322.483 

0.21 

88 The Greek stock exchange transaction tax ceases to apply for shares purchased from 1/1/2013 onwards. 
89 In the IA accompanying the Commission's proposal, the taxation of derivatives by EL is mentioned though. 

64 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
14 

Italia 

Y90 

N 

Transaction 
tax 

Y 

- For sale of shares and 
other equity securities, the 
value of the transaction; 
- Tax on cancelled orders 
- For transactions on 
derivative contracts, 
taxation is fixed and 
determined by the type 
and the notional value of 
contracts 

loan capital 
- The issuance and 
cancellation of shares and 
financial instruments in 
certain conditions; 
- The sale of shares on the 
regulated markets and 
multilateral trading systems, 
securities issued by 
companies whose average 
market capitalization in the 
month of November of the 
year preceding the transfer is 
less than EUR 500 mn.; 
- Transfers of property by 
inheritance or gift; 
- Operations conversion into 
new shares and temporary 
acquisitions of securities 

- 0.2%; 
- 0.2 %; 
- Derivatives will be taxed a 
flat rate between EUR 0.1  
and 200 per transaction 
depending on the type and 
value of the contracts. For 
transactions that take place on 
regulated markets or 
multilateral trading systems, 
tax will be reduced to 1/5 and 
determined by decree 
according to the average 
value of a standard contract. 

N 
15  Latvia 
N 
16  Lithuania 
17  Luxembourg  Y91 

Y 
N 
N 

Subscription 
tax (taxe 
d'abonne-
ment) 

Indirect tax levied on the 
presumed circulation of 
assets/financial 
instruments. It is levied 
on certain financial 
institutions residing in 
LU: (1) family offices, (2) 
alternative investment 
funds (AIFs) and (3) 

There are some special 
exemptions concerning the 
assets and financial 
instruments included in the 
tax base 

(1) 0.01% and (2) 0.05% of 
the next assets; (3) 0.25% of 
the capital with issuance 
premium included plus a part 
of the liabilities/debts 

Residence 
principle 

N 

604.9883 

1.41 

90 IT has in place a stamp duty on the communications made by traders for financial or financial instruments held or financial contracts concluded for their clients. The legal 
base is DPR 642 of 1972; Annex II (on the tariffs) mentions 'documents relating to any transfer or receipt of money, securities or other assets', on which a flat rate tax is levied 
(per page  of  contract  or per item  transferred or  held).  Moreover, IT has in  place  a  registration (flat rate)  tax on  contracts officially  registered by  a  public notary  or under 
private signature. These taxes have more the characteristics of indirect taxes other than VAT on services related to certain financial activities. 

In November 2012, the IT government submitted a proposal, further amended in December 2012, to implement a national FTT based on a broad definition of the taxable base 
(derivatives and cancelled orders included) and the principle of the place of transaction. This tax will enter into force as of March 2013 (for securities) and July 2013 (for 
derivatives). 

65 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
18  Malta 

Y 

N 

Stamp duty 

undertakings for 
collective investment in 
transferable securities 
(UCITS) 
The tax is due on every 
document whereby 
marketable securities 
(share, stock, debenture, 
bond and alike, including 
options with physical 
delivery of such shares 
and bonds) are transferred 

19  Netherlands 
20  Poland 

N 
Y 

Y 
N 

Registration 
tax (on 
contracts) 

Contracts of sale and 
exchange of property 
rights, in particular shares 
and stock in a commercial 
company 

(1) A duty of 2 Euro for every 
one hundred euro or part 
thereof of the amount or value 
of the consideration or the 
real value, whichever is the 
higher of the marketable 
security shall be charged. 

(2) Where it results that 
seventy five percent or more 
of the assets, excluding all 
other current assets other than 
immovable property of the 
company whose marketable 
securities are transferred, 
consists of any immovable 
property or any right over an 
immovable, the duty 
chargeable shall be increased 
by 3 Euro for every one 
hundred euro or part thereof.  

1% 

Transactions involving 
securities listed on a stock 
exchange recognised under 
the Financial Markets Act, 
transactions between spouses 
or involving trusts etc. are 
exempted. 
No duty is chargeable on any 
restructuring of holdings 
through mergers, de-mergers, 
amalgamations and 
reorganisations within a group 
of companies defined as: a 
holding company and its 
subsidiaries (a company is 
deemed to be a subsidiary if 
more than 50% of its voting 
shares are beneficially owned 
by its holding company); 
companies which are 
controlled and beneficially 
owned directly or indirectly to 
the extent of more than 50% 
by the same shareholder. 

Primary market transactions 
are exempted from the tax. 
Moreover, the tax does not 
cover financial instruments 
traded by to investment firms 
and foreign investment firms, 
on an organized trading 
platform, or outside organized 

Residence 
principle 

Yiv 

2.1283 

0.03 

Yiv 

N/A  N/A 

Place of 
transaction 
& residence 
principles 

91 The LU tax is apparently a sort flat rate tax; they are taxing a presumed circulation of securities, based on changes in the overall assets of the taxable persons. 

66 

 
 
  
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                                                                                                              
trading by investment 
companies and foreign 
investment companies, if 
those rights were acquired by 
these companies in the 
organized trading. 

21  Portugal 
22  Romania 
23  Slovakia 
24  Slovenia 
25  Spain 
26  Sweden 
27  The UK 

N92 
N93 
N 
N 
N94 
N 
Y 

Y 
N 
Y 
N 
N 
Y 
Y 

Stamp duty; 
stamp duty 
reserve tax 

Stamp duty – UK stocks 
and marketable securities 
which are transferred on 
sale for consideration. 
SDRT – chargeable 
securities i.e. stocks, 
shares and certain types of 
loan capital  issued or 
raised by UK companies, 
which are agreed to be 
transferred for money or 
money’s worth 

Primary market transactions 
are exempted from the tax. 
Other reliefs and exemptions: 
intermediary relief (a 
principal broker dealer which 
is recognised as an 
intermediary by a trading 
venue and HM Revenue & 
Customs is subject to relief 
from stamp duty and SDRT 
on any purchases of UK 
securities made as principal), 
stock lending relief, clearing 

Stamp duty and SDRT – 0.5% 
on transfers of securities 
although a higher 1.5 per cent 
charge applies where UK 
incorporated shares are 
transferred on sale (or 
otherwise than on sale) to a 
depositary receipt issuer or 
clearance service 

Issuance 
principle 

Yiv 

3987.683 

0.23 

92  PT  has  a  stamp  duty  in  place,  but  it  is  levied  on  credits,  bank  overdraft,  premiums,  interest  and  various  commissions/fees.  Apparently  PT  also  intends  to  introduce  a 
financial transaction tax in the near future. 
93 Nevertheless, the Romanian Securities Commission is levying fees/parafiscal taxes on various transactions in order to finance its own budget on the basis of Law no. 514 of 
2002 for the approval of the Emergency Government Ordinance no. 25 of 2002 regarding the approval of the Statute of the Romanian Securities Commission. Flat rate fees 
are levied also on derivative contracts. 

It is not clear whether the RSC is a public agency as defined by the IMF (in relation to extra-budgetary funds, in the context of the principal-agency model). Nevertheless, 
their budget is approved by and they have to report to the Romanian Parliament on an annual basis. 
94 However, transfers of shares or units through which one acquires or strengthens the control over a company whose assets are predominantly real estate seem to be taxed. ES 
also intends to introduce a financial transaction tax in the near future and has discussed a draft law in this sense with the Troika in the context of the support programme for 
banks. The draft FTT Law was issued in 2012, but no formal announcement on plans to implement such tax has been made. 

67 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
28  Croatia95 

N 

N 

relief, charity exemption, 
unsecured loan capital 

95 To become a MS of the Union as of the 1st of July 2013. 

68 

 
 
 
 
 
 
 
 
 
 
 
                                                            
Annex 2: Taxes on transactions in financial instruments in third 
countries 

Disclaimer:  The  Commission  services  bear  sole  responsibility  for  this  publication  and  its  content.  It  is  based  on  the 
Commission  services'  interpretation  and  processing  of  the  information  obtained  from  third  countries  as  well  as  on  other 
sources. 

Based on the replies received from the EU delegations in third countries and on other sources 
of information, 22 countries in the world seem to apply various kinds of financial transaction 
tax whose rationale is similar to some extent to that of the EU proposal although the design 
might be completely different (see table). 

The  scope  and  the  design  of  these  taxes  present  wide  differences  according  to  the  different 
countries. Nevertheless, some common features at a regional level can be observed. Most of 
the  third  countries  applying  a  tax  on  financial  activities  (the  majority  of  those  in  Asia) 
implement a security transaction tax (STT) on secondary trading in shares and/or bonds (e.g. 
Korea,  Taiwan,  India  –  also  on  trading  in  futures  and  options),  but  Turkey  also  applies  a 
banking  and  insurance  transaction  tax.  In  many  instances,  the  tax  design  of  these  taxes  is 
inspired  by  the  British  stamp  duty,  e.g.  China,  Hong  Kong,  Iceland,  Malaysia,  Namibia 
(stamp  duty  on  the  issue  and  transfer  of  shares),  Philippines  (documentary  stamp  tax), 
Switzerland, Turkey. Rarely only, such taxes have a form of special contributions (Honduras). 
Some countries apply also a form of Specific Business Tax (SBT), e.g. China, Thailand, that 
applies a kind of Financial Activity Tax.  

In  addition  to  shares  and/or  bonds,  some  countries  also  tax  derivatives.  Some  of  them  tax 
options solely at the moment of physical delivery (China, Switzerland, Hong Kong, Iceland, 
South  Korea  and  Thailand)  and  others  "truly"  tax  derivatives  (India,  Malaysia  and  Taiwan) 
such as futures and/or options (based on premiums for instance). For the latter category, the 
rates  are  very  small  (for  instance,  0.017%  in  India,  0.0005%  in  Malaysia).  According  to 
media  reports,  the  government  in  South  Korea  decided  recently  to  introduce,  besides  the 
stamp duty of up to 5% on shares, a 0.001% levy on the Korean Composite Stock Price Index 
(KOSPI)  200  index  futures  trades,  and  a  0.01%  levy  on  the  KOSPI200  index  options 
transactions. This additional tax in Korea would kick in as of 1 January 2016. 

There are countries which also tax the primary issuance of financial instruments (e.g. Turkey, 
Russia); these transactions are specifically exempted in the Commission's proposal for FTT. 
Repos  and  reverse  repos  are  taxed  in  Turkey,  Switzerland,  China  and  Thailand;  the  latter 
includes it in the scope of its form of FAT called Specific Business Tax. A separate group of 
countries is made up of those that tax currency transactions or capital/monetary flows (some 
for the purpose of foreign exchange controls); most are situated in South America and Africa 
(Bolivia,  Chile,  Ecuador,  Turkey,  Congo,  Guinea  Bissau,  Dominican  Republic).  Some 

69 

 
 
 
 
countries apply a kind of FTT in the form of a fee, for instance, a registration fee (Algeria), a 
market cost or a foreign exchange control fee (Congo).  

Two  special  cases  are  represented  by  the  United  States  and  Australia  (not  included  in  the 
table), which impose levies for regulatory purposes which feed into the budgets of the public 
interest  bodies  (securities  exchange  commissions)  that  supervise  their  capital  markets.  The 
same model was actually implemented in Romania, for example. Still far away from the FTT 
model  proposed  by  the  European  Commission,  these  entities  are  actually  levying 
fees/parafiscal taxes. It is not clear though whether they can be considered public agencies as 
defined by the IMF (for extra-budgetary funds, in the context of the principal-agency model). 

No. 

Country 

Type of tax 

1.  Algeria 
2.  Bolivia 
3.  Chile 

4.  China 

5.  Congo 
6.  Dominican Republic 
7.  Ecuador 
8.  Guinea Bissau 
9.  Honduras 
10.  Hong Kong 
Iceland 
11. 

Registration fee 
Market costs (fees) 
Stamp duty on money credit transactions 
Business tax/ 
Stamp duty on securities transactions 
Foreign exchange control fee 
Tax on banking transactions 
Tax on foreign exchange transactions 
Commission on funds transfers out of WEAMU 
Special contribution of financial transactions 
Tax on "Hong Kong stock" 
Stamp duty on financial transactions 

12. 

India 

Securities transaction tax 

13.  Malaysia 

14.  Morocco 

15.  Namibia 

16.  Philippines 

17.  South Korea 

18.  Switzerland 
19.  Taiwan 

20.  Thailand 

21. 

Trinidad  
and Tobago 

22.  Turkey 

Stamp duty on certain transactions of stock market of Bursa 
Malaysia 
Taxe sur les profits de cession de valeurs mobilières et autres titres 
de capital et de créance (revenus de cession) 
Stamp duty on the issue or transfer of shares/ 
Draft transfer duty on the sale of shares and members' interests   
Capital gains tax on the sale, exchange and other dispositions of 
capital assets 
Documentary stamp tax; Percentage tax 
Securities transaction tax 
Levy on index futures and index options 
Financial transfer stamp duty (droit de timbre de négociation) 
Securities transaction tax 
Specific business tax/ 
Tax on invested equities/ Stamp duty 
Financial service tax 
Insurance premium tax 
Banking and insurance transactions tax 
Stamp duty 
Resource utilisation support fund 

70