Tax News
Financial Transaction Tax in Europe: U.S. Managers Should Keep Their Eyes Open
March 22, 2012
The idea of a financial transaction tax has been largely unsuccessful in the United States. Last year's proposal by Representative Peter DeFazio and Senator Tom Harkin to impose a 0.03%  tax on financial transactions did not get any traction in Congress. Similarly, the proposals to tax currency transactions failed without much support. The latest incarnation of a currency transaction bill by Pete Stark was discussed on this blog here.   However, it appears that the winds of change in Europe blow more forcefully than those in the U.S.  While there isn't much development regarding an unanimous consensus among the members of the EU to vote a directive adopting the financial transaction tax across the EU member nations, it appears that France has moved along and adopted such tax in its own jurisdiction. A few weeks ago the French National Assembly adopted the financial supplementary bill which contains the financial tax provisions that were previously rejected by the French Senate in February. This tax comes into effect on August 1st of 2012 and will be imposed at 0.1% of the value of the investment. The tax has a separate component that applies to high-frequency trading and credit default swaps which are subject to 0.01% tax. This tax could impact U.S. hedge funds that trade French stocks or CDS. More importantly, it clearly illustrates the commitment of some EU nations to the the financial transaction tax despite the lack of success in convincing other EU nations to adopt the tax across the entire EU. It would not be surprising if other EU countries follow suit implement the financial transaction tax on their own.  Thus, U.S. Managers that do business in Europe should do at a minimum two things: (1) be familiar with the scope of the tax, noting however, that there could be differences between the proposed EU directive and any individual country's laws, as is the case with the French law, which differs from the directive in some key respects, and (2) closely follow legislation in the European countries they do business in to gauge whether bills similar to the one in France are growing legs locally.   The Alternative Investment Management Association has a comprehensive analysis of the financial transaction tax which could be found here.
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Tags: financial transactions tax, FTT