President of the European Commission, José Manuel Barroso presented a proposal for the introduction of a financial transaction tax in the 27 Member States of the European Union to the European Parliament. The proposed tax would be levied on transactions between financial institutions when at least one party to the transaction is located in the EU. The exchange of shares and bonds would be taxed at a rate of 0.1% and derivative contracts, at a rate of 0.01% which the Commission projects could raise €57 billion every year. The Commission has proposed that the tax should come into effect from 1st January 2014.

The proposed new tax would serve two purposes according to the Commission. Firstly, it would ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the Member States. Second, the proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. This will help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises according to the Commission. The Commission hopes that the financial transaction tax at EU level would strengthen the EU's position to promote common rules for the introduction of such a tax at global level, notably through the G20.

The financial transaction tax aims at taxing the 85% of financial transactions that take place between financial institutions. Citizens and businesses would not be taxed. House mortgages, bank loans, insurance contracts and other normal financial activities carried out by individuals or small businesses fall outside the scope of the proposal.

The Commission has explored the idea of taxing the financial sector at EU level for several months and considered an activities based tax (known as FAT) but appeared to favour the transaction tax as a more useful global levy.

Full details of the Commission proposal is available from http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1085&format=HTML&aged=0&language=en&guiLanguage=en