The so-called Robin Hood tax is continuing to generate criticism as a group of member nations tries to advance the financial transaction tax through the European Commission.

The FTT, which targets the financial sector because of its role in the current economic crisis and because of the government support received by the sector, seeks to ensure the sector pays its share through new levies on shares, bonds and derivatives. The plan was floated in the European Commission in 2011, but was scuttled when it became clear there would be no consensus on the issue as several members, including the United Kingdom, raised objections.

The proposal was revived earlier this year under a provision called the enhanced cooperation process, which allows a minority of members to enact legislation. The eleven members pushing for the adoption of the tax are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, and Spain.

Proponents say the FTT would raise 30 billion to 35 billion euros annually for governments, and promote a stronger and more cohesive single market for participants. Proposed rates are 0.1 percent for shares and bonds, and 0.01 percent for derivatives. The proposal states that “day-to-day” financial transactions of ordinary citizens and businesses would not be affected. Raising capital or transactions that are part of a restructuring process also would be exempt. In an attempt to prevent financial services companies from relocating their operations, the tax would be applicable if any party involved in the transaction is established in one of the 11 participating states.

Algirdas Semeta, commissioner for taxation, has called the proposal “an unquestionably fair and technically sound tax.”

As the issue winds its way through the European Commission, all 27 member states can join in the discussion, but only the 11 participants can vote on the proposal. Non-participants would not be forced to enact the tax in their home country.

A report released this week by the Association for Financial Markets in Europe, charges that the EC has drastically underestimated the impact of the FTT. The study was conducted by consultancy Oxera at AFME's request. AFME's chief executive has warned the tax would have “serious harmful economic effects” beyond just the 11 participating members.

In its report Oxera said the FTT would make some transactions “uneconomic.” In particular, pensions could be hard hit, with an active pension reduced by nearly 8 percent or funds pushed into untaxed investments at a cost to the pensioners.

“Ultimately, any FTT is a tax on the end-users of financial instruments, which includes pension funds,” the report states.

The report also counters the EC's impact assertions on intermediate transactions, secondary market transactions in government debt, repurchase agreements and derivatives.

“With respect to all of the products and actors considered here, it would seem likely that the FTT would deter many financial transactions that have real economic value, resulting in both lower-than-expected FTT revenues and negative economic implications due to the loss of some activity,” the Oxera report states.

Also chiming in with opposition to the tax is a report out this week from Deloitte Financial Services Group. The report says the initiative is a concern for both market participants and end investors, with the potential to disrupt markets and impose far greater taxes than existing costs or margins. The report also notes that it is not just the financial services sector which could be touched by the tax.

“Other industries which rely upon derivatives to hedge risk, such as manufacturing, oil and gas, would also be affected,” the Deloitte report states.

Both reports say the impact would be felt beyond the 11 participants because the tax would be triggered if just one party is located within the FTT zone.

The 11 members pushing the FTT in the European Commission are hoping to begin collecting the new levies in January 2014. However, the United Kingdom last month launched a legal challenge to the proposal in the European Court of Justice, which is likely to delay the effort.

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