Since the first published proposal in 2011, we have tracked initiatives and developments regarding a possible European financial tax that would apply to derivatives, among other types of financial transactions.[1] Despite the publication of a European Commission (“EC”) directive in February 2013 that would apply to eleven participating member-states, the scope and implementation of a financial transaction tax continues to be fiercely debated. Among other things, the proposed directive would, after an initial “transitional” period, impose a tax rate of at least 0.01% of the notional amount on derivative transactions.
On November 21, 2013, PricewaterhouseCoopers LLC released a study—commissioned by 27 trade groups in the financial industry—that, based on existing literature surrounding a financial transaction tax, questioned the benefits of such a tax and highlighted its potential to negatively impact financial markets, as well as economic growth.[2] With respect to the derivatives market, the study noted that the EC’s impact assessment estimated that a financial transaction tax would reduce trading volumes by between 70% and 90%.[3] The study further noted that certain commentators have predicted that the tax could have a substantial (or, for some product types, profound) impact on the bid-offer spreads of derivative transactions.[4]
Most recently, it has been reported that the participating member-states have been discussing the implementation of a more narrow and modest tax, including one with more robust exemptions. However, a revised proposal has not yet been published.
[1] See “Financial Transaction Tax Developments” posted on August 26, 2013; “Financial Transaction Tax Developments” posted on June 11, 2013; “Financial Transaction Tax” posted on February 15, 2012; and “Europe Proposes Financial Transaction Tax” posted on October 15, 2011.
[2] PricewaterhouseCoopers LLC, Financial transaction tax: the impacts and arguments, November 21, 2013 (available at: https://www.pwc.fr/fr/assets/files/pdf/2013/11/pwc_ftt_litterature_review.pdf).
[3] Id. at 24.
[4] Id.