Bloomberg News

European Financial Transaction Tax Unlikely, Credit Suisse Says

September 29, 2011

Sept. 29 (Bloomberg) -- The European Commission’s proposed financial-transaction tax, which would impose a levy on stock, bond and derivative trading, is unlikely to be implemented, according to Credit Suisse analysts.

“At this stage we are skeptical that a Europe-wide transaction tax will be implemented,” London-based analysts led by Carla Antunes-Silva wrote in a note to clients today.

If the tax was agreed by all 27 members of the European Union, it would have a “very negative” impact on markets, particularly affecting investment banks, exchanges and high- frequency trading platforms, the analysts said.

The U.K., whose agreement is needed for the tax to be implemented, says it will approve the EU measure when the rest of the world does likewise. European Commission President Jose Barroso proposed the tax yesterday, saying it could raise 57 billion euros ($77.7 billion) annually from 2014.

The idea would allow the financial industry to make “a fair contribution at a time of fiscal consolidation,” according to the commission, the EU’s executive arm. A transactions tax should be imposed irrespective of whether non-members agree, according to France and Germany.

The British government “will continue to engage with its international partners on financial-transaction taxes and has no objection to them in principle,” the Treasury said in a statement yesterday. “But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through.”

‘Considerable Way Off’

U.K. Business Secretary Vince Cable told Bloomberg Television “we do not think taxation is a matter for the European Union, it’s a national responsibility; we set our own taxes and we’re going to stay with that.” The measure has also been opposed by U.S. Treasury Secretary Timothy F. Geithner.

The proposal may become a tax on financial companies’ customers rather than the firms themselves and the threat of companies leaving the EU or setting up units abroad to avoid the measure are further barriers, Chris Sanger, London-based head of tax policy at Ernst & Young said in an e-mailed statement.

“Given the significance of these unknowns and the long- standing divergences in national opinions, any binding decision on a pan-European financial transaction tax still looks to be a considerable way off,” said Sanger.

The proposal would apply a tax of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts, the commission said.

--Editors: Francis Harris, Dylan Griffiths

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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