London, Netherlands, Ireland and Luxembourg look set to gain from FTT implementation

A Financial Transaction Tax (“FTT”) could be in place in 11 EU Member States as early as January of 2014, following a meeting of EU finance ministers meeting in Luxembourg.

Although there is as yet little detail regarding the proposal (such as the level of the tax), it is expected that the FTT would be imposed on the purchase and sale of all financial assets and all derivative transactions.

EU Tax Commissioner Algirdas Semeta said that the transaction tax would be a source of new revenue from an under-taxed business sector, and a means of encouraging more responsible trading.

Some commentators thought that the proposals for an FTT were effectively dead earlier this year when an attempt to get the principle agreed by all 27 European failed in the face of strong disagreement from territories such as the UK and Sweden, which fear that the proposals would drive business out of Europe. There was a belief in many quarters that concerns over maintaining a competitive “level playing field” would deter a subset of EU members from forging ahead whilst others held back.  However, it seems that this analysis was wrong.  Following strong lobbying from France and Germany, 11 member states have confirmed their support for the tax and are prepared to go it alone. The eleven countries are Austria, Belgium, France, Estonia, Germany, Greece, Italy, Portugal, Slovenia, the Slovak Republic and Spain.  Not surprisingly, those EU countries with significant international finance centres (such as Netherlands, Luxembourg and Ireland) are not amongst the supporters.

There are still a number of hurdles to be overcome before an FTT is in place in the 11 countries - all Member States have a say in whether or not to authorise the proposals, with a qualified majority of member country votes needed for authorisation to be granted.  However there is clearly a momentum building regarding the tax and, if countries like the UK are right that an FTT will lead to business moving away from territories which impose it, then there is a powerful incentive for them  not to try to block the move by the 11, in the hope that a consequence would be a move of work from places such as Frankfurt to the UK.

This is a view which is supported by many industry insiders.  Last week David Stewart, CEO of London-based hedge fund firm Odey Asset Management commented that if an FTT was introduced "People will arbitrage it. People will find a way around it.  If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London."  

Places such as the UK, Netherlands, Ireland and Luxembourg should therefore see this as a move which will enhance their international competitiveness, at a time when the fight for business has never been more fierce.