EU Proposes Transaction Tax for Financial Institutions

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.