EU Proposes Transaction Tax for Financial Institutions

Plan to be presented to G20 in November

The European Union proposes that a transaction tax be assessed on financial institutions, the EU announced Wednesday.

Planned to take effect in 2014, the tax is expected to raise approximately 57 billion euros ($78 billion) per year. The EU intends to offer its proposal, after discussion by member states, to the G20 nations at a November summit meeting.

The plan is to be effective throughout all 27 EU member nations, Bloomberg reported.

In a statement, the European Commission (EC), the EU’s Brussels-based executive, said that it would set minimum tax rates for financial transactions and is aiming at banks, investment firms, insurance companies, pension funds, stockbrokers and hedge funds, as well as other kinds of financial firms. It would assess trading of stocks and bonds at a rate of 0.1%, with a rate of 0.01% for derivatives contracts.

A 2010 proposal to assess a financial transaction tax previously went down to defeat among member nations.

The EC said the tax would “ensure that the financial sector makes a fair contribution at a time of fiscal consolidation.” The EU also plans to insulate households and small businesses from the tax, and provides for banks to charge “not excessive” fees, such as a 10-euro fee on a 10,000-euro stock purchase.

In its impact statement, the EU said that the tax would have a “long-run” negative impact of 0.5% of GDP, and would affect market behavior and financial sector business models, such as high-frequency and automated trading. The financial industry has said that a transaction tax would affect the broader economy because banks would pass on costs to clients.

The measure most likely still faces a fight. In a Bloomberg Television interview Wednesday, U.K. Business Secretary Vince Cable was quoted saying that taxation is a “national competence issue,” and that European Union proposals for a levy on financial transactions cannot be forced on the U.K.

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