US Rejects EU’s Planned Robin Hood Tax

Last Updated: 15, February 2013

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

The United States has criticised the European Commission’s proposal to introduce an international financial trading tax, arguing that the so-called Robin Hood tax overreaches borders and flouts international treaties on global trade.

The European Commission on Thursday unveiled a 35 billion euros ($47 billion) levy on financial transactions which will be collected by 11 of the eurozone’s largest economies, including Germany and France, but applies to all trades in the world’s main financial centres.

According to EU Tax Commissioner, Algirdas Semeta, the EU financial sector was “under-taxed” by some 18 billion euros and that the levies – 0.01 percent for derivatives and 0.1 percent for stocks and bonds – would ensure that the “financial sector makes a fair and substantial contribution to public revenues”.

“The FTT will not apply to day-to-day financial activities of citizens and businesses in order to protect the real economy,” the European Commission said in a statement.

“Traditional investment banking activities” such as raising capital or restructuring deals will also be exempt, the Commission said.

The Commission believes the tax would also weed out potentially dangerous, low-margin and high-frequency trades. It estimates that the number and volume of trades in stocks and bonds could drop by around 15 percent, while derivatives transactions may drop by as much as 75 percent.

Semeta said:

[quote] On the table is an unquestionably fair and technically sound tax, which will strengthen our single market and temper irresponsible trading. [/quote]

However, Brussels’s push for the so-called Robin Hood Tax puts it on direct collision course with other EU members as well as the United States. While national transaction taxes are not new, both argue the long reach and legal inventiveness of the proposed tax is unmatched.

In a revision that strengthens the Commission’s original EU-wide proposal, the tax will also be applied to transactions based on where the share, bond or exchange-traded derivative was issued – the so-called residence principle – even if it takes place in Hong Kong, London or New York.

This week, a coalition of U.S. business groups, including the US Chamber of Commerce and the Financial Services Forum, wrote to the Commission objecting to the “unilateral imposition of a global financial transaction tax.”

They said:

[quote] These novel and unilateral theories of tax jurisdiction are both unprecedented and inconsistent with existing norms of international tax law and long-standing treaty commitments. There is a high risk that their adoption could lead to double and multiple taxation, a deterioration of international tax cooperation and trade protectionism. [/quote]

A spokeswoman for the U.S. Treasury Department told the New York Times that officials had raised concerns about the rules with their European counterparts and added that the Treasury did “not support the proposed European financial transaction tax.”

Semeta insisted Thursday that the Commission’s proposal was in line with international law and said firms refusing to pay the tax would face fines.

The Commission wants the tax to go into effect on January 1, 2014, but it first has to be unanimously agreed to by all participating states as well as the European Parliament.

About EW News Desk Team PRO INVESTOR

Latest news about the state of the world economy.

View all posts by EW News Desk Team