Of Special Interest
7th February 2012
UK banks could still end up paying some FTT
A report from the Ernst & Young Item Club warns that UK financial organisations could end up having to pay around 60% of the total European proceeds of a Financial Transaction Tax even though the UK has opted out of implementing the tax. This could happen if the rest of the European Union were to implement a 'reverse charge mechanism'. This figure is lower than the 75% that the UK would generate if the UK agreed to implement the tax. Another difference is that as the UK is not implementing the tax then it would not receive any of the tax income generated whilst if it did implement the tax it would receive the money.
In addition to the consequences of the cost to British financial institutions there would be a very major political consequence should such a reverse charge mechanism be introduced by the EU. Amongst the Conservative Party Members of Parliament there are many strongly anti-European Union, and some more broadly anti most-things-foreign-with- the-exception-of-the-US. One reason for the Conservative party losing power previously was its internal split over European policy. Many of the anti-EU faction believe the Prime Minister and most of their Liberal Democrat coalition colleagues are pro-Europe. Any attempt to apply such a reverse charge mechanism by the EU could well bring down the government, or make it un-re-electable because of internal divisions.
The E&Y article did not go into detail as to how such a Reverse Charge Mechanism could be imposed.