United States: Financial Transaction Tax Developments

Since the first published proposal in 2011, we have tracked initiatives and developments regarding a possible European financial tax that would apply to derivatives, among other types of financial transactions.¹  Despite the publication of a European Commission ("EC") directive in February 2013 that would apply to eleven participating member-states, the scope and implementation of a financial transaction tax continues to be fiercely debated.  Among other things, the proposed directive would, after an initial "transitional" period, impose a tax rate of at least 0.01% of the notional amount on derivative transactions.

On November 21, 2013, PricewaterhouseCoopers LLC released a study—commissioned by 27 trade groups in the financial industry—that, based on existing literature surrounding a financial transaction tax, questioned the benefits of such a tax and highlighted its potential to negatively impact financial markets, as well as economic growth.²  With respect to the derivatives market, the study noted that the EC's impact assessment estimated that a financial transaction tax would reduce trading volumes by between 70% and 90%.³  The study further noted that certain commentators have predicted that the tax could have a substantial (or, for some product types, profound) impact on the bid-offer spreads of derivative transactions.⁴

Most recently, it has been reported that the participating member-states have been discussing the implementation of a more narrow and modest tax, including one with more robust exemptions.  However, a revised proposal has not yet been published.

Footnotes

^{1.See " Financial Transaction Tax Developments" posted on August 26, 2013; " Financial Transaction Tax Developments" posted on June 11, 2013; " Financial Transaction Tax" posted on February 15, 2012; and " Europe Proposes Financial Transaction Tax" posted on October 15, 2011.}

^{2.PricewaterhouseCoopers LLC, Financial transaction tax: the impacts and arguments, November 21, 2013 (available at: http://www.cbi.org.uk/media/2482473/FTT_impacts_and_arguments.pdf).}

^{3.Id. at 24.}

^{4. Id.}

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