The future of the FTT

The future of the FTT

In the wake of the Great Depression, John Maynard Keynes developed the idea of using a financial transaction tax (FTT) to curb excessive speculation and volatility in financial markets. With 11 EU member states calling for the introduction of an FTT on certain financial products, Dan Neidle, a partner at Clifford Chance, considers whether the FTT would be effective in deterring harmful financial activity.

What is the financial transaction tax?

In 2011 the European Commission proposed an FTT that would apply to most financial products—equities, bonds, derivatives and interests in funds. The proposal required unanimous support among the 27 EU member states, but it became clear quite quickly that the UK and most other EU members would not support it.

The 11 member states that supported the FTT still wanted to proceed, and so applied the (rarely used) EU ‘enhanced cooperation procedure’, which lets nine or more member states proceed with a measure if they are agreed on it as between themselves.

However they have run into two significant difficulties.

The first is what the scope of the FTT should be. The original proposal was a very broad-based tax, of a type never before introduced in a developed economy—and many feared the impact a tax of that kind could have on businesses, investors and consumers. This led some to support a narrower tax, much closer to UK stamp duty or the recently introduced French FTT—both of which essentially apply to equities only. However, that is seen by many of the FTT supporters as insufficient at raising revenues and deterring transactions they see as undesirable.

The second difficulty is whether the FTT should apply extra-territorially. The original proposal applied whenever anyone, anywhere in the world, transacted with someone in the 11 participating member states. This ‘residence principle’ was and remains highly controversial, as it suggests companies and financial institutions in the UK, Sweden and other countries that aren’t participating in the FTT would still be affected by it

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About the author:

Neeta has been working as a paralegal in Banking and Insolvency for the past 4 and a half years.

She started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice Course. She moved to Lexis®PSL in April 2013.