From the TUC

Cameron plans to let Europe take £21bn a year from the City … and we get nothing!

07 Feb 2012, by in International

Big Four accountancy giant Ernst & Young say that the Government is planning to give away more than £21bn a year in tax revenue to other EU governments. The Daily Mail must be apoplectic. Eurosceptic MPs must be foaming at the mouth. Have Cameron and Osborne gone stark, staring mad? What on earth is going on?

It’s all about Cameron’s ham-fisted attempt to opt out of EU regulation of the City of London. Many people have remarked upon his failed attempt to veto the Franco-German treaty proposal at the December European summit. Now, on top of the veto that wasn’t, here’s the opt-out that isn’t.

By refusing to take part in the Commission’s proposed financial transactions tax, Cameron thinks he has protected his pals in the City of London from paying the tax. But he hasn’t. All he will do by opting out is make sure that the British people don’t benefit from the tax when the rest of Europe goes ahead with it.

Here’s how it works. The Commission’s plan for an EU-wide financial transactions tax would raise about €57bn a year. Because London is where most of Europe’s financial transactions take place, about 75% of that tax revenue would be raised from transactions in the City of London. Cameron thinks that if the UK refuses to take part, those transactions won’t be taxed.

But Ernst & Young have ‘spotted’ what the Robin Hood Tax campaign has been arguing for some time. The way the Commission is designing the tax, the transactions which will be taxable won’t be just those that take place in countries taking part, but any transactions carried out where one of the parties to the transaction is based in a country where the tax is introduced. So if France and Germany levy the tax, and just one party to a financial transaction is Deutsche Bank or Bank Paribas, the euroFTT is payable, even if the actual transaction takes place in the so-called duty free City of London.

What Ernst & Young have added to the Robin Hood Tax campaign’s analysis – they are accountants after all – is that they have worked out what Cameron’s early morning diplomatic faux-pas will cost the UK taxpayer. They estimate that of the 75% of transactions that take place in London, 60% involve at least one party based in the rest of Europe. If the UK was involved in the EU tax, that would mean the City of London paying £35bn into the Treasury. If the UK doesn’t take part in the tax, the City of London will pay £21bn in tax – but none of it will end up in the UK Treasury, it will all go to other EU member states. London’s financial fat cats will indeed save £14bn, but at a huge cost to the UK taxpayer.

There’s only one answer. Cameron needs to go cap in hand back to Brussels, and ask if the UK can rejoin the Robin Hood team.

15 Responses to Cameron plans to let Europe take £21bn a year from the City … and we get nothing!

  1. Bill Kruse
    Feb 7th 2012, 10:20 am

    Cameron appears to have been outsmarted on every level. Now there’s a surprise!

  2. Tim J
    Feb 7th 2012, 12:08 pm

    “The way the Commission is designing the tax, the transactions which will be taxable won’t be just those that take place in countries taking part, but any transactions carried out where one of the parties to the transaction is based in a country where the tax is introduced.”

    The problem is, of course, that for it to be applicable across the EU, it must be adopted unanimously. If it’s adopted outside the EU (even if across the entire Eurozone) it’s likely to fall foul of EU law on free movement of capital. See recent ECJ decisions regarding German/Portuguese taxation on dividends.

    Attempts to apply the FTT unilaterally to the UK would cause one hell of a legal wrangle.

  3. Tim J
    Feb 7th 2012, 12:10 pm

    To put it another way – if the FTT works in the way you are suggesting, it will apply equally in New York, Hong Kong and Singapore. Can you see the US rolling over and accepting it?

  4. Owen Tudor

    Owen Tudor
    Feb 7th 2012, 12:24 pm

    Tim, that’s just the same as he UK stamp duty. If you trade in UK shares, you pay stamp duty to the UK treasury whether you trade them in London or Louisiana. The residence principle the EU is proposing is slightly different, but the Commission is likely to add a stamp duty-mimicking legal title principle, so the effect will be very similarly extra-jurisdictional (sorry for the jargon!)

  5. Tim J
    Feb 7th 2012, 3:12 pm

    But the Commission can’t implement an FTT without UK consent – that’s the whole point. If the Eurozone implement it, it would be outside the EU legal set-up. A tax that penalises or prevents some Member States from trading with others (or penalises them for moving their offices to other Member States) falls foul of two of the primary freedoms that underpin the entire EU.

    There’s a raft of recent ECJ tax decisions that have ruled MS provisions on taxation of, e.g., dividends to fall foul of this. I honestly don’t think it will be as easy as all that.

  6. Owen Tudor

    Owen Tudor
    Feb 7th 2012, 3:29 pm

    Apologies Tim, I was answering your second question. I’ve seen legal advice on both sides of the argument (isn’t that always the case?)

  7. den
    Feb 8th 2012, 11:02 am

    If a German citizen purchased shares of stock from the new york stock exchange, and these shares were of an American based and registered corporation, under what law, right and mechanism will the EU force the German citizen to pay tax upon this purchase of foreign stock?

  8. Owen Tudor

    Owen Tudor
    Feb 8th 2012, 11:06 am

    Den, I’m not sure I see the problem – when I buy a bottle of French wine (for medicinal purposes you understand!) I pay tax to the Exchequer. Shares are, admittedly, intangibles, so you’re not actually bringing a piece of paper into the EU in the case you set out, but the principle isn’t hugely different.

  9. den
    Feb 8th 2012, 11:51 am

    When one in the UK buys a UK listed share and pays stamp duty on that share, the share is traded within the UK, its logical to pay tax in this instance. Now if an American purchases a share from the UK and this share is subject to stamp duty, the American to acquire that share had to participate in a trade involving a country that subjects the shares listed on its own exchanges to stamp duty, again totaly logical.

    When an American purchases shares from a country that does not subject shares listed on its exchanges to stamp duty they do not pay stamp duty, when a British person purchases shares from a country that subjects its exchange listed shares to stamp duty they pay the duty to the country in question, in the absence of stamp duty there is no payment.

    What is the mechanism to tax ones activitys on a product with no connection to the country wanting to levy the tax, when the product never enters the country in question.

    Two more things come to mind, why imposed the global tax on EU-residents at all? The population of the UK purchase UK listed shares ( as does the rest of the world ) because they are quality corporations worth investing in, yet UK residence are free to invest any where in the world without paying a stamp duty to the UK government, this has worked without issue for a long time.

    Why are you trying to force the tax upon every one without choice, and as for banks/market makers, I have recently read that high frequency trader could potentially pay up up 50% per year due to there high turn over rate, market makers without being given exemptions, as well as subjecting every stage of a trade to the tax will be liable for something very similar.

    The costs of this will be transfered to the end users and the spreads in the market will increase massively, why is it being done this way?

  10. Owen Tudor

    Owen Tudor
    Feb 8th 2012, 4:41 pm

    Den, the simple answer is that states are allowed to tax their citizens and anyone who passes through, as well as corporate entities which operate in the country.

    In terms of your later points, the 50% rate you mention is a guess-timate based on people trading shares over and over again. This high frequency trading is something many people think is socially and economically useless or indeed bad, so taxing it heavily would not be a bad idea. But you’d need to be going it some to hit even a 20% rate, which is what everyone pays in VAT on most goods and sevices.

  11. den
    Feb 8th 2012, 6:47 pm

    “Den, the simple answer is that states are allowed to tax their citizens and anyone who passes through, as well as corporate entities which operate in the country.”

    We dont have states we have countrys, all of which have no jurisdiction out side of there borders when it comes to matters such as making a trade legally enforceable on the basis of a tax being paid to a national goverment for a product they have no connection to, the answer here is not simple please go into depth and talk me through it, also you never adressed the actual need to impliment such a policy, when as I have said the UK model has worked fine.

    “In terms of your later points, the 50% rate you mention is a guess-timate based on people trading shares over and over again”

    Such as market makers and dealers, because its there job to provide a market and trade over and over again.

    “This high frequency trading is something many people think is socially and economically useless or indeed bad, so taxing it heavily would not be a bad idea.”

    Yet market making and dealing is neither economically useless or bad and taxing it is a very bad idea, every consumer pays VAT on goods and services but the businesses providing those goods and services do not, so again why is the proposed transaction tax aimed at market makers and consumers, taxing every step of the transaction of which all costs will be transfered to the end of the chain, landing the purchasing party of financial products a transaction cost many times the size of the state 0.1%??

    To put it in a simple way, why are there no exemptions for market makers..

  12. den
    Feb 8th 2012, 7:25 pm

    http://online.wsj.com/article/BT-CO-20120208-713375.html

    Take a look at Frances proposal, sensible and workable.

  13. Owen Tudor

    Owen Tudor
    Feb 8th 2012, 11:28 pm

    Den, even in the financial markets there are people who say high frequency trading is a bad idea, eg Lord Adair Turner who first described it as “socially useless”. You agree that the French idea is sensible and the UK system works well, but these only tax long-term investments. I think short-term investments should also be taxed, although because the margins are lower, the tax rate will have to be lower (0.005% as opposed to 0.5% under the UK stamp duty). To reach the 50% tax rate you cite, people would be trading each share 10,000 times a year, or once every 12 minutes of the working day. And yet still they would make a profit!

  14. den
    Feb 9th 2012, 2:08 pm

    “Den, even in the financial markets there are people who say high frequency trading is a bad idea, eg Lord Adair Turner who first described it as “socially useless”.

    What has that got to do with market making? High frequency trading and market making have something in common, they both deal in large volumes, and thats reason enough for you to propose they are equally subject to a transaction tax? They must both be bad because large volumes in small time frames are involved?

    “You agree that the French idea is sensible and the UK system works well”

    > 0.1% levy on the purchase of shares in companies headquartered in France with a market capital of over EUR1 billion.

    > 0.01% tax on trades in naked credit default swaps.

    > High frequency trading ~ 0.01% tax on cancelled orders once the ratio of cancelled orders to completed orders goes beyond a certain level.

    The French idea is sensible if my understanding of the situation is correct, its fair and non instrusive, they want to tax Shares of companies headquartered on there own soil and not the actions of French citizens globaly, the relevant exemptions for qualifying intermediaries are also included.

    The UK system works very well without attempting to subject UK residents to taxation where ever they purchase financial products in the world, so again why do you want to change this and what is the specific legal frame work to do so?

    “I think short-term investments should also be taxed.

    To reach the 50% tax rate you cite, people would be trading each share 10,000 times a year, or once every 12 minutes of the working day. And yet still they would make a profit.”

    Market making is not investing, it is facilitating trade and as far as I am aware under the EU proposals there are no exemptions for such entitys, trading a share 10,000 times a year to hit 50%???

    LLOY.LS traded 160642563 yesterday alone and without exemptions for those making a market the financial transaction tax costs of any size applied to them will be passed on to the end buyer of shares who already has his share of the tax to pay.

    High frequency trading, called socially useless by some has reduced spreads substantially, remove this as well as the short term liquidity providers and the true cost is many many times greater than what is being proposed.

    I know you dont understand much of this Owen or the market but thats always been the case, enjoy your wine.

  15. SOS
    Feb 10th 2012, 9:28 pm

    The more I read about this the more ridiculous it sounds. Why can’t politicians focus on sensible policies, instead of parading around the world grandstanding, wasting taxpayer money on something so clearly ridiculous that European competitors would quickly take advantage of?

    This all sounds like fanatics trying to push an elephant through the eye of a needle.

    As for the Robin Hood fantasy, I want to choose where my hard earned tax goes, not have it commandeered by some money-wasting charity for non-preferred causes.

    The UK treasury boffins and their PM should tell the European dictators in no uncertain terms – bugger off.