BPG News Alert

Financial Transaction Tax, FATCA and Double Taxation Treaties tighten tax regulations for international business operations

On 14 February, the European Commission (in the following: Commission) released a statement in which more details of the Financial Transaction Tax (FTT) are described. Implementation is sought by 11 Member States* so far. 
 
FTT will amount to 0.1% and will be levied on all transactions regarding shares and bonds, units of collective investment funds, money market instruments, repurchase agreements and securities lending agreements. 0.01% will be levied on derivative products. The rates are proposed minimum rates and the participating Member States are free to apply higher rates. The tax would have to be paid by each financial institution involved in the transaction. 
 
Excluded from FTT are day-to-day transactions such as insurance contracts, mortgage and business lending, credit card transactions, payment services, deposits and spot currency transactions. Further, transactions in order to raise capital are excluded from the taxation as well as certain restructuring operations and financial transactions with the ECB and other institutions such as national central banks, EFSF and ESM. We assume that once the FTT is implemented, other Member States will follow to implement FTT. In order to join the FTT group of member states merely a request must be submitted to the Commission.
 
As recent as within the last days, Germany and the US have concluded an agreement aiming at ethical and justified tax payments in terms of US-German business operations by providing specific information on US taxpayers’ accounts with German banks.  The agreement was concluded in connection with FATCA.
 
FATCA, new Double Taxation Treaties as well as FTT and contracts concluded bilaterally have all one common element: Cooperation and Exchange of information – In other words: The EU and the US aim towards generating an increasing amount of information to not only oversee an unknown amount of financial transactions but to make sure tax evasion is reduced. 
 
In the overall picture, the long-term intentions of all parties involved (both the US and EU member states) are quite obvious from observing the recent activities: By openly discussing all sorts of collaboration possibilities (e.g. a free-trade zone between the US and the EU) and by stepping up efforts towards tax related matters and reduction/ elimination of tax avoidance in general, tax regulations will be much tighter on corporations engaged in business operations in the transatlantic and EU region. Minimum taxation cases such as “a famous coffee distributor”, a “famous search engine” etc. have taught the affected governments that respective adjustments within their tax systems are overdue.
 
* Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia 
 
Kind regards from Frankfurt
Your BPG team