
AIMA says financial transaction tax could undermine EU single market |
Date: Friday, January 20, 2012
Author: Wendy Chothia, HedgeWeek
The proposed European Union financial transaction tax (FTT) could lead to a significant decrease in cross-border trading of financial instruments in the EU, undermining the single market, according to the Alternative Investment Management Association (AIMA), the global hedge fund association.
AIMA, which has carried out a comprehensive analysis of the proposed FTT,
said there would be a significant slowdown in trading of financial instruments
like shares, bonds and derivatives in the EU.
The AIMA analysis concluded that the FTT would have widespread, unintended
damaging consequences. As well as undermining the EU’s single market, the FTT
would be likely to reduce EU taxpayers’ savings and pensioners’ incomes, lead to
a reduction in the level of investment in the real economy, send asset prices
lower, widen spreads, hinder efficient price discovery and increase market
volatility.
The Commission’s own studies concluded that the FTT would leave the EU worse off
by tens of billions of euros annually. It estimated that the FTT’s annual
revenues would be approximately €25bn-€43bn, but there would also be a reduction
in EU-wide GDP of between 0.53% (€86bn) and 1.15% (€186bn).
Even that considerable cost may have been underestimated, AIMA said, because it
did not fully take account of the “cascade” effect of taxes being applied to
every constituent part of a particular trade.
AIMA CEO Andrew Baker (pictured), says: “Our analysis concludes that the EU’s
proposed financial transaction tax will reduce or eliminate a vast amount of
cross-border share and bond trading activity within the European Union, thus
undermining the Single Market. And we are not talking about complex financial
transactions but very simple buying or selling of shares undertaken by ordinary
investors. This could have very serious unintended consequences - including a
further tightening of financing conditions for business - at a critical moment
for the European economy.”
Equity, bond or derivatives trades routinely involve one or more intermediaries
such as dealers and brokers, often located in a different EU member state from
the buyer or seller.
The Commission’s own studies acknowledge that simple share trades usually
require a much longer transaction chain, with one or more intermediaries being
interposed between a client and a trading venue in another EU member state. AIMA
said the Commission had underestimated the widespread extent of this practice
and overestimated the degree to which buyers and sellers would be able to change
existing practices to reduce the number of transactions necessary for a
cross-border trade. A smaller, less liquid market in the majority of Member
States would be the outcome, said AIMA.
Baker says: “Article 113 of the Lisbon Treaty, which is the legal basis of the
Financial Transaction Tax proposal and which states that taxes are to be
introduced only ‘to the extent that such [tax] harmonisation is necessary to
ensure the establishment and the functioning of the internal market’, is being
used to present a proposal that would lead to a significant reduction of much
cross border trading in the EU because it would attract double or triple the tax
burden compared to purely domestic transactions.”
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