Eleven EU states to consider narrower transaction tax

Wed Dec 11, 2013 9:08am EST
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By Huw Jones

LONDON (Reuters) - The 11 European Union countries that have pledged to tax financial transactions will consider narrowing the levy's scope to shield pensions, government debt and markets that help to grease the economy, an EU document shows.

The aim of the tax is to make banks pay for some of the taxpayer money they received during the 2007/09 financial crisis, but worries over unintended consequences have mounted among some of the countries taking part.

Representatives from the 11 participating countries meet on Thursday to review plans for the tax on stock, bond, derivatives and other trades. They include Germany, France and Italy, but not Britain, the bloc's biggest trading center, which is challenging the tax in the EU's highest court.

The meeting will consider conflicting opinions on the legality of the original proposal and warnings from industry that it would have a detrimental effect on financing for companies.

The document, seen by Reuters, sets out key areas for discussion to provide "guidance for further work on the proposal" - the clearest sign yet that the original plan is dead in the water and that any tax that emerges will be less ambitious.

France is already pushing for a more modest stamp duty-type tax on share trading, which it has introduced nationally, while Italy is worried about disruption to its sovereign debt.

The meeting will also consider excluding repurchase agreements from the scope of the proposed tax framework after the sector warned that the tax would crimp its ability to help to fund the economy. These agreements, known as repos, are a form of short-term borrowing backed by government securities.

"As repo is such an important instrument in modern financial markets, the possible exclusion of repo and collateral from the tax, which threatened their efficient operation, is a most encouraging development," said Godfried De Vidts, chairman of industry body the European Repo Council.   Continued...

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach