Practical analysis for investment professionals
31 October 2013

Poll: What Is the Biggest Obstacle to the Proposed Financial-Transaction Tax in 11 EU States?

Posted In: Economics

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers about the financial-transaction tax proposed by 11 EU member states.


What is the most important obstacle to implementation of a proposed financial-transaction tax by 11 EU member states?

Poll: What is the most important obstacle to implementation of a proposed financial-transaction tax by 11 EU member states?


Led by France and Germany, 11 out of 27 EU member states have agreed to levy a financial-transaction tax on stocks, bonds, derivatives, repurchase agreements and securities lending. These 11 states are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. The main intended objective of the tax is “to receive a fair and substantial contribution from the financial sector to the financing of the rescue operations from which it benefited either directly or indirectly.”

When we asked readers what the most important obstacle is to the tax’s implementation, a clear majority (53%) of the 504 respondents chose uncertain consequences, such as decreased liquidity or relocation of financial activities from the concerned states. A minority of those surveyed (19%) indicated that the pressure against the tax from the financial-services sector is the most important obstacle, and 14% cited lack of support from other EU states. The response of our readers is intuitive. To deal with such a tax, market participants will change their behavior in ways that cannot be fully anticipated ex ante. If and how the tax should be levied and whether or not it would succeed in meeting its objectives are not just matters of “what if” quantitative analysis but also of political judgment. To learn more about the tax, read our blog post.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Usman Hayat, CFA

Usman Hayat writes about sustainable, responsible, and impact investing and Islamic finance. He is the lead author of "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals," and the literature review, "Islamic Finance: Ethics, Concepts, Practice." He is interested in online learning and has directed three e-courses for CFA Institute: "ESG-100," "Islamic Finance Quiz," and "Residual Income Equity Valuation." The other topics he writes about are macroeconomics and behavioral finance. Previously, he was a content director at CFA Institute. He is a former executive director at the Securities and Exchange Commission of Pakistan (SECP). He has experience working in securities regulation and as an independent consultant. His qualifications include the CFA charter, the FRM designation, an MBA, and an MA in Development Economics. His personal interests are reading and hiking.

5 thoughts on “Poll: What Is the Biggest Obstacle to the Proposed Financial-Transaction Tax in 11 EU States?”

  1. One obstacle is that if the EU does it and the US doesn’t, more trades will move to US markets. Need to get the US and Hong Kong to move in the same direction at the same time.

    1. James McRitchie

      Thanks for checking our poll. I think lack of universal implementation of the tax, even within EU, has been an issue. The 11 states, however, are still willing to go ahead with it and one can understand their perspective. Having said that, I can see the merit in the idea that if all major financial centres applied this tax and applied it uniformly, the tax could be more effective.

  2. What this means is basically a requirement for short-term investors as well as some sophisticated long-term investors to use derivatives instead of outright ownership, such as total return swaps. If the governments involved wanted to prevent this, that would be a big difficulty. I’m not sure, though, they’re even seriously opposed to such use of derivatives since the tax is mostly meant to appease the populist left, not to raise revenue. The next round of difficulties might come from the use of such swaps further divorcing voting rights from economic rights in stock ownership. Who, if anyone, will vote the shares held through swap agreements, and what incentives does that party have?

    1. Oliver M. Haynold

      Thanks for your comment. I think if and to what extent this tax will make one instrument more attractive than the other will likely become clearer when all its details are finalized.

  3. Simon Thorpe says:

    One way to really get business leaders backing an FTT would be to propose to use it to replace some of the incredibly inefficient tax systems such as corporation tax. With financial transactions in the Eurozone running at €1.6 quadrillion a year (http://simonthorpesideas.blogspot.fr/2013/08/eurozone-transactions-from-2006-to-2012.html ), a flat rate FTT at a very modest level would allow corporation tax to be abolished within the FTT. Yes, the High Frequency Traders might move elsewhere, but the actors in the real economy i.e. the companies that actually make things that people want to buy and provide services that are useful, would move into the FTT zone. There are billions currently sitting on company accounts in taxhavens that would immediately relocate to the first country or region where Corporation taxes were replaced by an FTT. Yes, the companies would have to pay 0.1% or what ever to relocate, but that is nothing compared with the 20-30% corporation tax that would otherwise have to be paid.

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