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Financial transaction tax

Published on November 6, 2014
Article by M. Michel Sapin, Minister of Finance and Public Accounts, in the daily newspaper Les Echos

Paris, November 4, 2014

Financial transaction tax (FTT): let’s stop beating about the bush

Europe needs an agreement that lays the foundations for enhanced tax cooperation. We are proposing an effective mechanism that does not chase away financial activity.

In Brussels on Friday, the European finance ministers will debate the planned financial transaction tax (FTT). On the government’s behalf, I shall make proposals to implement an initial stage. On 6 May, 11 countries made a commitment to adopt concrete solutions by the end of the year, in order to introduce a common financial transaction tax before 1 January 2016. The last six months have enabled us to make a great deal of progress, and an agreement is now within reach if everyone shoulders their responsibilities. It is an historic opportunity to make headway on tax harmonization in Europe and combat speculation.

France wants to contribute to an ambitious, pragmatic agreement – an agreement enabling us to tax transactions effectively without chasing financial activity out of our countries. Without it, we would lose on both counts: the tax would bring in nothing and financial activity would be relocated. This is precisely what is at stake in the discussions we shall be holding on Friday.

I shall be making concrete proposals, always bearing in mind the basic principle of a financial transaction tax: to effectively curb transactions which are dangerous to the real economy. Considerations of yield are subordinate to this principle.

The basis of the new tax will be to tax transactions on quoted shares. The tax already exists in several countries, and in France, for example, it brings in more than €800 million a year, enabling us to finance development, among other things. States that would like to do so will be able to extend it to unquoted shares.

We must ensure we maintain our tax revenues in the long term.
Experience shows that the only solution which does not eliminate the tax base is to tax transactions on shares in companies based in the country, whatever the location of the transaction or of the financial intermediary: the “issuance principle”. This is the choice France has made, and it is no accident that Italy is doing the same. Some of our partners prefer a so-called “residence principle”, which taxes transactions carried out by financial intermediaries situated on their territory. But transactions can be easily relocated and are more mobile than companies themselves. My proposal is a compromise whereby everyone wins: applying the “issuance principle” to determine the tax base (i.e. taxing transactions on shares in companies with headquarters in one of the 11 participating countries) and applying the “residence principle” to determine the state which benefits from the tax levied (thus, for a French company share bought by a Portuguese bank, the proceeds would go to Portugal; if that same share is bought by a French bank or a bank from a country outside the 11, the proceeds would go to France).

We must also tax derivatives which contribute to speculation.
I propose, in the initial stage, taxing transactions on what are generally called Credit Default Swaps, which do not pass through clearing houses. These transactions are purely speculative and extremely dangerous: they can be used to destabilize states or companies, because they bet on the risk of an issuer defaulting, and thus contribute – through the sheer lure of profit – to its collapse.

Some people may regret that we are not taxing all transactions from the outset. My proposal is targeted, but at least it works! To think today that we can rake in tens of billions of euros without financial transactions migrating to horizons where the tax does not exist is a dangerous fantasy or a futile dream!

Since I came to office, I have set myself a goal: to finally implement a tax that maintains and protects good finance and the financing of our economic fabric while making a significant contribution to funding [overseas] development.

On Friday I shall be promoting this balance to my European partners. We must succeed on this issue, which is important for the future of European integration: the financial transaction tax will be the first enhanced cooperation project in the area of taxation. It is time to move to deeds!./.