What Would a Financial Transaction Tax Look like?

transaction taxTime passes and the European Union (EU) continues to discuss a bloc-wide transaction tax.  What are they really talking about?


For years, the EU has been metabolizing the idea of a Financial Transaction Tax (FTT).  The overall objective is to “ensure that the financial sector makes a fair contribution to national tax revenues. It is also intended to discourage transactions that do not enhance the efficient allocation of resources by the financial markets.”


It is tricky stuff for discussion because different countries, like Austria and Germany, see the impact of an FTT differently in their principalities.  We advise clients with offshore tax concerns and the complexity of any incoming FTT.


As the name implies, when a financial transaction occurs, a portion of the value of the trade is paid as a tax.  Depending on regulations, the tax could be paid by the buyer, the seller, or the third party that facilitates the purchase, like a stock exchange.


The Tax Foundation sets out a number of points about FTT, including how an FTT could be used as a source of public revenue in the US. Let’s take a look at some of the ideas:


  • A previously proposed FTT in the US, called the Inclusive Prosperity Act, suggested that between $60 and $220 billion could be raised annually with a 0.5 percent tax on stocks and a 0.1 percent tax on bonds.
  • Such an FTT could raise the costs of transacting business, devalue assets, and reduce the volume of transactions or trades.
  • The goals of an FTT are varied—from increasing tax revenue to reducing tax fraud and sketchy trading activity. The real impact of an FTT is difficult to gauge.


Several European countries, including Ireland, Switzerland, the UK, Poland, Finland, and France impose some kind of FTT.  A .02 percent tax rate has been on the table for some time as a suggested FTT for the EU.   According to an article in The New York Times, the German Finance Minister believes the 0.02 would help with payment of low-income pensioners.  Yet, the Austrian Chancellor feels the plan does not go far enough to deter volatile, speculative transactions while creating disadvantage to investors with less wealth and smaller investments.


The difficulty of agreeing on an FTT may, in the end, delay any FTT indefinitely.  As noted by German Chancellor Angela Merkel, “We can of course keep talking — it just can't be the case that, with a change, another five countries bail out. So it's a very difficult matter.”


Experienced IRS tax lawyer in Chicago

In Chicago and Cleveland, the law offices of Robert J. Fedor, Esq., LLC provides knowledgeable legal representation on civil and criminal tax charges and other tax controversy.  If you are under investigation, or receive a notice of an IRS audit, call us at 800-579-0997.


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