STRASBOURG, France (Reuters) - The European Union’s executive proposed a bloc-wide tax on financial transactions it said would raise 57 billion euros a year, but banks described the plan as nonsense and Britain said it would only support a global levy.
The EU’s executive European Commission formally adopted on Wednesday plans for a financial transaction tax from January 2014, which will need unanimous approval from EU states and which it said it hoped the rest of the world will copy.
“With this proposal the European Union becomes a forerunner in the global implementation of a financial transaction tax,” EU Tax Commissioner, Algirdas Semeta, said in a statement.
“Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect — a fair contribution from the financial sector. I am confident that our partners in the G20 will see their interest in following this path.”
Under the plan, stock and bond trades would be taxed at the rate of 0.1 percent, with derivatives at 0.01 percent.
The EU executive said the tax would be imposed on all transactions in financial instruments between financial firms when at least one party to the trade is based in the bloc.
Revenues would be divided between the EU’s own budget to cut national contributions, with the rest going directly to member states.
The Group of 20 forum has tried and failed in the past year to agree on a global transaction tax as many countries fear it would be too easy for financial firms to evade.
Canada, Britain, the United States, Australia and China oppose the tax because it puts more of a burden on banks, while France, Germany, Austria, Belgium, Norway and Spain support it, along with several African states.
Britain, the EU’s biggest financial centre, reiterated on Wednesday such a tax would only work globally.
“The government will continue to engage with its international partners on Financial Transaction Taxes and has no objection to them in principle. But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through,” a UK Treasury spokesman said.
A transaction tax, dubbed a Tobin Tax after the U.S. economist who devised it in the 1970s, has periodically been mooted but yet to be broadly introduced because of fears it can be easily circumvented.
Without Britain’s backing, there may be an attempt to introduce the tax voluntarily among euro zone countries.
“The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU,” the executive added.
Britain, for example, already imposes a small stamp duty tax on share trades and has also introduced a levy on bank balance sheets.
The European Banking Federation said the introduction of a transaction tax is a “nonsense” as it could shift business to elsewhere in the world.
The Association for Financial Markets in Europe (AFME), another banking lobby, said many financial transactions are made on behalf of businesses who would bear the extra costs.
KPMG, a consultancy, said the additional reporting and compliance costs, as well as the IT systems needed to facilitate the tax, would be huge.
A European Commission impact study on the tax said there are strong risks of transactions relocating to countries not applying the levy.
With a tax rate of 0.1 percent, the Commission’s models showed drops of up to 1.76 percent in gross domestic product in the long run.
Reporting by Fiona Shaikh and Huw Jones in London and Francesco Guarascio in Strasbourg, France; Editing by John Stonestreet