EFAMA Comments on the EU Commission`s Proposal for a Council Directive on a Common System of Financial Transactions Tax

Wednesday November 30 2011

Fund Axis would like to draw your attention to a recent European Fund and Asset Management Association (“EFAMA”) publication commenting upon EU Commissions proposal for a Directive on a common system of a Financial Transactions Tax. A high level overview of the comments from EFAMA is provided below and as well as a link to the full publication.

EFAMA Comments on the EU Commissions Proposal for a Directive on a Common System of Financial Transactions Tax

Several political commenters have recently voiced their support for the EU Commissions proposal to introduce a new common Financials Transaction Tax (“Tobin Tax”) across the EU. These commentators have highlighted the fact that they believe that they Tobin Tax would allow the Financial Services Industry to start making a real tangible contribution to the EU economies as well as providing a buffer fund for future bailouts should a financial crisis every hit the industry again. EFAMA in its response wishes to counteract that belief and instead highlights the fact that EFAMA strongly believes that the introduction of a Tobin Tax would in fact harm the European Economy and in reality be borne by the ordinary citizens, (the consumers of financial services) including savers and those with pension plans.

EFAMA goes on to state that the reason for this adverse impact on long term savers would be that the baseline rates of the Tobin Tax are quite high and in addition if the Tobin Tax was introduced in its current format it would also lead to the tax being applied multiple times to the individual saver. This would in turn have a long term societal impact by reducing the savings that consumers would have available to them thus reducing overall demand in the economy.

EFAMA goes on to state that it also believes that the introduction of the Tobin Tax in its current format would have a detrimental impact on the European Funds Industry itself as the tax would apply to transactions at the dealing level for investors buying into or redeeming out of a fund and also to transactions carried out at the portfolio level of the fund. There would also be a further taxation impact for investors who were brought into the fund via a financial intermediary.

Peter de Proft, Director General of EFAMA, comments: “We are particularly concerned that end consumers and their advocates have not appreciated the very significant cost impact which the proposed financial transaction tax would have on their long term savings. The bottom line is that it would mean citizens having to save a larger part of their earnings, retire at a later age, or face a significantly reduced pension in retirement.”

EFAMA goes on to conclude that it doesn’t believe that the Tobin Tax itself would even have the outcome desired by its advocates, e.g. the generation of net revenues, as it believes the Tobin Tax would so dampen consumer appetite that investment into funds would significantly drop off and that the Funds themselves would seek to relocate outside of the zone in which the tax is being applied to, e.g. Eurozone, to escape its influence. This would in turn lead to a negative impact on the European economy rather than a positive impact that is currently being envisaged.

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