Financial Transaction Tax: France and Germany issue an outline of proposed financial transaction tax to be implemented in the European Union

Sullivan & Cromwell LLP - September 12, 2011

Following an announcement made by President Sarkozy and Chancellor Merkel in August 2011, the outline of a proposed financial transaction tax (“FTT”) was released on September 9, 2011 in a letter sent by France’s and Germany’s Ministers of Finance to the EU Commission (the “Letter”). The Letter calls for the implementation of the FTT at the European level first, stating that “the European Union should lead the global mobilization on this issue”. The FTT would be applicable to all types of financial transactions, except for transactions that are viewed as “non-speculative” such as loans or transactions on primary equity markets. Financial transactions would be subject to the FTT when at least one counterparty is located in the EU. The Letter sets forth several proposals for the definition of the tax base, which could be different for different types of instruments. The Letter does not provide guidance on applicable tax rates. However, the European Commissioner for taxation Algirdas Semeta indicated that a tax of 0.1% (and 0.01% on derivatives) would be low enough so as not to trigger avoidance measures. The FTT would be collected by financial intermediaries and central depositaries/clearing houses. The UK Chancellor indicated on September 10, 2011 that he would oppose a new European tax on financial transactions. However, Germany’s Wolfgang Schaüble has said in the past that the FTT may be implemented in the euro zone first. The EU Commission will propose a draft proposal on the FTT in early October.