The European financial transaction tax (FTT) should still be a major concern for the industry, especially beneficial owners that are likely to bear the brunt of the tax, said John Billige, managing director, Emea tax director at State Street Global Markets.

He explained that a lack of progress and the fast approaching deadline of January 1 2016 could lead to a tax that was “completely imperfect for the industry”.

“The European Commission and the 11 member states may want the banks to pay their fair share of tax, but I think it should be understood that it’s the beneficial owners who will pay the transaction tax. The banks will push the costs down to the client,” said Billige.

“Bearing in mind that by the end of this year they’re going to have to come up with some sort of consolidated conclusion, I find it really difficult to comprehend how they’re going to come up with something sensible as they haven’t been able to come to any concrete conclusions since 2013.

Billige explained that it was likely to be difficult to avoid the tax as the 11 member states had introduced the issuance principle, the taxation of a transaction based on where the security was issued, in the 2013 directive for enhanced cooperation.

“ combined with the establishment principle led us to think that the 11 are trying to get to a ‘no way out’ situation for a transaction of securities undertaken either within one of the eleven states or with a security issued by one of the 11 states.”

The lack of clarity is causing the financial industry multiple problems. Although the 11 states had agreed that there would be a tax on equities by 2016, for every other type of transaction, be it derivative, fixed-income or anything else, each jurisdiction will be able to take their own unilateral decision over their course of action.

“That gives you a problem. Say an equities tax did come in, you then have different jurisdictions making their own decisions about other securities, until such time as the 11 come together again and make a consolidated view on what they’re going to do with other securities.”

The concern from a securities lending point of view specifically is that there has been no further discussion about how the tax will work regarding stock loan and repo transactions.

The most likely proposal, as things stand, is for a stock loan transaction between a member state and a non-member state (e.g. Italian firm and a US firm) to incur a 10bps charge on the loan by the Italian lender and 10bps on the pickup by the US borrower. If that US borrower wanted to lend the securities to a French (member state) borrower there would be again 10bps on the lender side and 10bps of the borrower side.

“It’s been rumoured that the double tax should be made singular. There would be 10 bps on the loan out and nothing on the return. There will be a tax charge on temporary transfers but we haven’t heard anything about relieving provisions for exemptions apart from repo transactions, for which we think there may a formal exemption.”

Billige finished by warning the conference not to get complacent: “A lot of people in the industry seem to think that this has all gone away now and it’s all finished, but it hasn’t, it’s still there. That’s quite dangerous.” 

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