David Martin's EU Tribune

France and Germany are piling more pressure on the European Union to approve a Financial Transaction Tax (FTT) – the so-called Robin Hood Tax – a measure that has met with huge resistance by many governments, economists and the financial industry.

At a time when billions of pounds are being slashed off public spending, the financial sector is not paying it fair share. A small tax 0.05%, on financial transactions by the banking institutions would raise billions of pounds to tackle poverty and climate change.

The reality is that the financial sector is currently under-taxed., which is unfair and wrong.

At an emergency summit, eurozone countries Germany and France argued that: “The European Union should lead the global mobilisation” of a financial transaction tax. The German and French leaders made their strong argument in a letter to the European commissioner for taxation and customs, Algirdas Šemeta.

“Although the Toronto G20 meeting demonstrated that a global agreement is very difficult to achieve, we strongly believe that the implementation of a financial transaction tax at the European level would be a crucial step on the path to reaching a global consensus in a way that does not affect European competitiveness,” they stated in the letter.

Ahead of a draft legislative proposal from the European Commission, the two leaders have outlined which transactions should be included and how the tax should be calculated.

To prevent tax avoidance the legislation should cover all financial instruments, including those that have not yet been created, argues the paper which has been circulated among the EU’s 27 member states.

The same goes for exchanges: “All possible future categories of exchanges should be covered by the measure,” state the two leaders.

The proposal differs from previous ones as it contains detailed suggestions on how to implement the tax. The tax base should be broad, including all transactions related to equities, bonds, currency and derivatives, and the tax rate should be variable depending on the value of a transaction, the letter says.

The paper recognises that not all transactions have a definitive value and leaves the tax rate for derivatives open. Derivatives are based on the predicted value of an underlying asset in the future and can be highly volatile and uncertain, the letter points out.

The leaders’ proposal also accounts for the credible outcome that the EU imposes an FTT before any other region. In the event that the EU is first and a transaction is carried out with a third party then the entire burden of the levy falls on the party established in the EU.

Although the European Commission is on track to release a draft FTT in the coming months, the measure has many enemies including the Con/Dem government in the UK.