UK Chancellor demands clarity over derivatives tax

UK Chancellor demands clarity over derivatives tax

UK Chancellor George Osborne has criticised the latest proposal for a Financial Transaction Tax (FTT) for lacking clarity over which derivatives will be included within the levy, writes Jonathan Watkins.

Speaking at today’s ECOFIN Council meeting, the UK Chancellor of the Exchequer once again slammed the tax, this time highlighting the lack of detail surrounding the hedging instruments.

“There is no information on what derivatives are going to be included,” said Osborne.

“It is quite a big market.

“Is this going to apply to shares and derivatives issued in all member states?”

A 0.01% tax is set to be applied to derivatives contracts by 11 participating EU member states which include Germany, Italy and France.

The draft for the tax was proposed in February 2013, though all EU members continue to debate the economic effects of the charge with the UK joined by the likes of Sweden and Luxembourg in being opposed to the charge.

Osborne said during the meeting, that members were today issued with a document, despite an agreement on full cooperation on the proposal between both participating and non-participating states.

He described the participating states as compiling the proposal in secret.

“We get a piece of paper from the participating states saying, ‘oh this is what we are going to do’.

“We are entitled to a clearer explanation to what was agreed last night.”

Luxembourg’s representative also described the document as ‘extremely vague’, which Sweden’s Finance Minister, Anders Borg, described it as a ‘proposal we cannot understand’.

Within the document issued to those attending the meeting, the European Commission said it plans to phase in the tax, with implementation on shares and derivatives representing the first step.

The UK has launched a legal challenge against the taxation, and while it was initially rejected, it did pave way for a future challenge over the extraterritorial impacts of the charge.

“The European Court of Justice judgement makes it clear that the UK or any other member state can challenge the final transactions tax proposal,” added Osborne.

“We will see the detail of what is proposed but we will not hesitate to challenge.”

Alexandria Carr, regulatory lawyer at Mayer Brown, said that in light of the European Court’s stringent rules, it was crucial for the UK to challenge the tax when it did.

“The UK, therefore, acted prudently in challenging the initial decision that authorised the 11 member states participating in the FTT to go ahead,” she said.

“Failure to do so could have resulted in the UK being told that any subsequent challenge was too late, whereas a finding that this challenge is too early will not prevent the UK challenging, if necessary, any legislation that the 11 member states ultimately adopt.”

The UK remains strongly opposed to the tax, with Osborne previously describing it as a bullet aimed directly at the heart of London.

Market participants have voiced concerns over the reduction of liquidity as a result of the FTT, also known as the Tobin Tax.

A recent report by FOW though, showed that derivatives trading in Italy has actually increased since the tax was introduced, with volumes up by 79% in the nine months following implementation.

The main issues highlighted by those opposed to the tax are the overall economic impacts on the European market, along with the extraterritorial impacts on non-participating member states.