The prospect of an even more stringent European-wide Financial Transaction Tax (FTT) is back on the agenda following Tuesday’s German coalition agreement. With the post-election settlement complete, the EU is to restart FTT negotiations on 12 December with potentially significant implications for Europe’s foreign exchange markets
Far from seeking the anticipated compromises with Angela Merkel's CDU party, the left-wing SPD party has secured an extension of the proposed tax to now include foreign currency trading in which the UK is a global leader.
The measures, if implemented, would place additional strains on the UK and other EU member states to limit the impact of the tax which could come into force in 2015.
The European Commission (EC) repeated this week that contrary to its own legal advice, the FTT can still proceed in its current form.
German coalition agreement signals new phase of FTT discussions
The proposed FTT, currently being pushed by 11 EU Member States, to tax trading in shares, bonds and derivatives globally had been put on hold over the summer pending the outcome of the German election negotiations.
Despite the efforts of Angela Merkel's CDU/CSU union, progressing FTT was included in this week's coalition agreement. In addition, the minority SPD were successful in extending the tax to foreign currency trading - a market in which London is the global leader.
This development looks set to spark a new phase of discussion around the final composition of FTT when negotiations resume on 12 December.
Algirdas Semata, EU Commissioner for Taxation, repeated again this week that the EC did not accept its own legal council's view that the FTT was in breach of EU law. He also called for decisive action from the 11 FTT countries to progress the tax.
UK, Luxembourg and the Netherlands stand against FTT
The UK has been at the forefront of attempts to block FTT. It claims that the current extra-territorial element of the tax extends the reach of the EU's Enhance Co-operation terms under which 11 Member States are collaborating to develop the harmonised tax. This term allows FTT countries to co-opt countries like the UK into collecting the tax in non-FTT territories for transactions based on instruments from their countries.
The UK, has asked for a hearing on the matter at the European Court of Justice.
Richard Asquith, Head of Tax at TMF Group, commented: "The potential inclusion of foreign currency trading by Germany in the proposed FTT is an unexpected and potentially divisive development. Most of the FTT countries had discounted this as too complex to police. It is clear that what little room for compromise there was prior to the German elections has been squeezed further in the coalition talks."