Since Germany’s proposed FTT only targets shares, the tax would potentially result in similar substitution across financial instruments and thus raise less tax revenue. For example, the United Kingdom’s FTT does not tax derivatives and evidence shows that derivatives trading has grown significantly. By only taxing shares, an FTT can be avoided by simply switching to derivatives trading. The design of the tax raises multiple issues. The tax is estimated to raise €1.5 billion (US $1.67 billion) annually, which would largely be used to fund pensions. Over 500 businesses across all 10 EU member states would be in scope, with 145 in Germany. An exemption for Initial Public Offerings is planned and the tax would only be levied on shares-derivatives and debt instruments would be excluded. For example, if shares are purchased for €1,000, one would be charged €2 on the transaction. Scholz proposes an FTT at a rate of 0.2 percent on the transaction value of purchases of shares in domestic companies valued at over €1 billion (US $1.11 billion). One of the reasons for making it a multilateral rather than unilateral effort is to mitigate migration of trading activity. Belgium, France, and Italy already levy an FTT.Īrising from debates triggered by the last recession, the tax is intended to make financial markets more stable by discouraging excessive risk-taking and to raise tax revenue. The group of 10 countries-Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, and Spain-has continued discussing taxing financial transactions after plans for an EU-wide FTT halted in 2011. Last week, German Finance Minister Olaf Scholz sent his plans for a financial transaction tax (FTT) to ministers from nine other EU member states.
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