Financial Transaction Tax: A Long and Winding Road

The last few weeks have seen yet more twists and turns in the long-running saga of the famous Financial Transaction Tax (FTT). Casting our thoughts back to December 2018, participating Member States in the group of 10 approved of a new approach put forward by France and Germany which called for a narrower scope of the tax based on the French domestic FTT. A legal text to that effect was expected “in the coming weeks” but didn’t appear. At the beginning of 2019, the group of 10 set themselves the goal of reaching agreement on the new approach by the time the EU Finance Ministers meet for their ECOFIN meeting in May.

Then while we were waiting for the legal text, on 6th May, France and Germany (again working together, the driving force behind the proposed tax) circulated a working paper entitled “Common Position Paper on the introduction of an EU-wide financial transaction tax (FTT)” to the Council High Level Working Party on taxation (which includes representatives from all 28 Member States). The paper stated that France and Germany would now like the discussions on a European FTT to be expanded so that as many Member States as possible are included.

On Thursday 16th May (the day before ECOFIN), Member States in the group of 10 gathered to discuss the FTT. Another self-imposed deadline for the group of 10 on the FTT had come and passed without agreement, and in this case without even a legal text being put on the table for discussion. Now however in the last couple of weeks it appears that a draft legal text for the FTT has been circulated to the group of 10 Member States. The draft legal text reflects the contents of the high-level paper originally circulated by France & Germany in December last. This draft legal text has been a long time in the making but it is clearly far from ready to be submitted as a formal proposal as there are many elements still to be completed. While is clearly a marked step forward for the FTT process, even if the group of 10 are satisfied with the drafting, it will not pacify concerns related to the question of what to do with the proceeds from the tax and how they will feed into the EU/Eurozone budget.

Where does that leave us now? Essentially, the group of 10 are closer to agreement than they were at the start of the year, but ultimately still far away. Originally the goal was to find agreement by the May ECOFIN, which would have sent a clear message to voters just before the European Parliament elections. This was not to be however and negotiations still continue. If the group of 10 can manage to agree on something politically sensitive like mutualising revenues under the tax, then agreeing on a narrow scope would appear very much achievable. On the other hand, the German Minister of Economic Cooperation and Development Gerd Müller (CSU) was reported as saying recently that the current direction of travel on FTT is “almost ineffective” and it would only work on an EU-28 basis.

What happens next? On the 14th June, there is due to be a policy debate on FTT at the ECOFIN meeting in Luxembourg. Significantly, the 18 Member States who are not part of the group of 10 will have the opportunity to ask questions and make comments related to the work. Then on the 20th and 21st June, there will be the European Council summit where the budget is due to be discussed. From the 1st July onwards, Finland will take over the Presidency of the Council. Finland has indicated that the file is in the hands of the group of 10 but they are prepared to facilitate talks if necessary.

Danny O'Connell