Germany’s deputy conservative party leader, Volker Bouffier, told Die Welt newspaper on Saturday that a planned financial transaction tax (FTT) is unlikely to go ahead.
“I don't see us introducing a financial transaction tax,” reportedly said Bouffier, a member of the right-leaning Christian Democratic Union (CDU), which is currently negotiating a coalition government with the left-leaning Social Democrats. He added the tax would “have devastating consequences” for Germany’s financial centers.
The tax – commonly called the Tobin tax after economist James Tobin who first proposed the idea in the 1970s – would impose a 0.1 percent levy on most equity and debt transactions starting in early 2014.
Bouffier’s message represents a turnaround from reports made last week that said senior politicians in the CDU and Social Democrat parties agreed to push for the FTT, which was due to be enforced in 11 countries including Germany in early 2014.
The tax was to be enforced through “enhanced cooperation” – a term describing nine or more EU member states deciding to move ahead with an initiative proposed by the Commission once it proves too difficult to reach unanimous agreement in all member states.
But efforts to impose the tax were weakened in September after Brussels' own legal experts claimed such a tax would be illegal in a leaked memo.
Because only 11 of the 28 EU members signed on to the controversial tax, it would be “discriminatory and likely to lead to distortion of competition to the detriment of non-participating member states,” according to the memo.
Critics have often questioned the legality of the tax due to its territorial overreach of power, as PE Manager previously reported. The tax would apply on transactions passing through both participating and non-participating EU jurisdictions.
“They're not just taxing their own – they're taxing investors and financial institutions across the EU and beyond,” said Clifford Chance tax partner, Dan Neidle. “There is a serious question whether this kind of extra-territorial taxation is consistent with EU treaties.”
Private equity fund managers feared “the tax would… hit transactions by private equity fund managers when purchasing or selling shares, bonds or options in portfolio companies”, said Mark Stapleton, of law firm Dechert, when the tax was originally floated.