The European Union’s Italian Presidency which draws to a close at the end of 2014 has issued a report on the progress made towards the introduction of a Financial Transactions Tax (FTT) by some EU countries under the EU’s enhanced cooperation provisions. Currently eleven EU member states are intending to participate in the FTT under these provisions.

The report states that the participating member states aim to build a harmonized taxation regime for taxing financial transactions, working with non-participating EU member states. The FTT will be introduced in stages with the first stage being the taxation of some share and derivative transactions and remaining stages to be implemented after consideration of the economic impact. However member states would be able to tax other financial products while those products are not yet included in the FTT. A step by step implementation would give time for analysis of the impact of the tax on the financial markets before proceeding with further stages of implementation.

At meetings of the Working Party on Indirect Taxation efforts have been made to define the scope of the transactions covered by the FTT, in other words to define the categories of financial products involved; to reach agreement on the basic principle of taxation that would apply to the FTT and to analyze collection methods for the new tax. These collection methods have been set out in a report by the European Commission.

The Presidency considers that further work on the FTT should take into account the scope of the FTT in respect of derivatives and the taxation principles for shares and derivatives. This includes establishing which financial products fall within the definition of shares. A solution has been proposed to the problems posed by taxing unlisted shares under the FTT. With regard to transactions in derivatives the work has looked at identification of categories of derivatives that would be subject to the FTT during the first stage of implementation. The future work will also need to cover the issue of the collection mechanism to be used for the FTT.