The Commission has published explanatory notes on key aspects of the proposed Financial Transaction Tax (FTT). The explanatory notes provide information and analysis on issues such as the tax contribution of the financial sector, the residency principle of FTT and the scope of the charge to FTT, possible market reactions to FTT, analysis of how FTT will be collected and the impact of FTT on pension funds.

Some interesting points outlined in the explanatory notes are as follows:

• The projected revenue from FTT is €57bn.
• The EU27 GDP weighted average share of the contribution by the financial sector to total corporate tax collection was around 20% in both 2006 and 2007. It decreased to 17% in 2008 and this share will most probably decrease further in the coming years due to the fact that the accumulated losses during the financial crisis will reduce future tax payments.
• The proposed introduction of FTT provides for a residence principle which aims to reduce the risk of tax avoidance through geographical relocation of transactions outside the EU.
• One of the explanatory notes explores possible market reactions to the introduction of the FTT including relocating to lower tax jurisdictions and changes to business models for the purposes of falling outside the scope of FTT.
• According to the explanatory note, FTT can be collected at a very low cost (less than 1% of revenue raised) if good use can be made of existing market infrastructures, e.g. with the help of trading platforms, trade repositories or clearing houses. The Commission believes that the infrastructure for the proper collection of the FTT is already in place and further measures to be introduced with FTT will encourage voluntary compliance.
• The impact of an FTT on pension funds will depend on both the asset allocation and on the investment strategy (more frequent trading versus less frequent trading, for example) of a pension fund. The explanatory note on this issue makes the point that not all assets or transactions in a pension would be subject to the FTT.

For full details see http://ec.europa.eu/taxation_customs/taxation/other_taxes/financial_sector/index_en.htm