Financial transactions taxation is applicable to France

According to 99 Partners Advisory, it is possible, from now, to put in place a tax on financial transactions,

Article also available in : English EN | français FR

After Parliament, in June 2011, adopted a resolution calling for financial transactions taxation, it is now up to the President of the European Commission to announce that a European tax on financial transactions would be proposed as from the beginning of October 2011. At the next G20 summit (Cannes on the 3 and 4 November, under French Presidency, the subjects of innovative financing for development and, included in this, taxation on financial transactions, will be discussed.

It is within this framework, that the advisory council of "99 Partners Advisory" - specialists who advise the major players in the financial industry - has just published its first study confirming the possibility of establishing French taxation on financial transactions and addressing the implementation rules.

A study, financed by UNITAID, and conducted at the request of Philippe Douste-Blazy, who is the Chairman of UNITAID and a special adviser to the United Nations secretary general on innovative financing, was presented on the 14 September at the UNESCO conference: "Taxing financial transactions for a fairer world : here and now"

The report recommended the implementation in France of a tax, similar to the British Stamp Duty, but extending it to taxation on bonds, debt securities, and derivative contracts. Even with low rates, such a tax would generate more than 12 billion euros per year. Like other countries applying similar taxes, the introduction of this tax in France, should not have a significantly negative impact on the French financial markets.

A French tax on financial transactions

The report presents the details of how this tax would be implemented. Throughout this study, the objective has been to define the conditions under which the tax will be imposed :
• that France could, indeed, create such a tax
• it must have as broad a tax base as possible
• it must be stable and permanent to ensure sufficient and predictable revenue;
• it must be technically and legally feasible

Furthermore methods of payments such as cheques, inter-bank transfers as well as transactions on the foreign exchange markets would be exempt.

The study firstly observes : several countries already successfully tax financial transactions. This is the case in the United Kingdom with the Stamp Duty Reserve Tax or in Taiwan with the tax on transactions of financial securities and financial contracts (derivatives)
Examination of theses taxes show us that there is a multitude of situations of taxation which already exist, notably financial instruments taxing collector agents who both generate and are liable for tax

- What the study proposes is how to structure the French FTT :

For the transactions on financial securities (stocks and bonds) : tax will apply to transactions on financial securities, delivered via a regulated and centralised depository on French financial markets. The tax will be collected upon transfer of the property titles to the central securities depository.

For transactions on financial contracts : transactions will be taxed on financial contracts where one of the parties is French, or belongs to a French group. The tax will be collected at the level of clearing houses or internal information systems on the French party’s side of the financials contract.

- Who should pay?
Buyers of financial stock and sellers of these financial instruments will be the ones affected by this new tax.

- What will be the cost of collection of the tax?
The FTT is technically feasible. It means an adaptation to the collecting agents’ computer systems ( in particular the central Depository for the titles and the clearing houses for the financial contracts) but it would not mean the mobilisation of extra and prohibitive methods on behalf of the Tax Administration

- What is the estimated collection ? On the basis of the volume of financial instruments on the French financial market in 2010, the estimated collection is the following : (after applying indicator corrections)

The FTT is feasible in the short term For 99 Partners Advisory the study shows that the application of a French taxation on financial transactions, is possible and quickly attainable. Conditions are actually coming together to make it a reality : a favourable context, a favourable time frame, an immediate technical and legal feasibility.

Next Finance , September 2011

Article also available in : English EN | français FR

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