New European transaction tax could hit investors hard

28 September 2011 3:28 pm | By Henry Brennan, Chris Salih

European Commission proposals for a financial transaction tax could see Ucits investors taxed three times, according to the Investment Management Association.

The Commission says the new tax, announced today, is a means of ensuring the financial sector makes a fair contribution to “the cost of re-building Europe’s economies and bolstering public finances”.

The UK has already said it will resist the tax, which plans to raise £50bn a year once it comes into force in 2014, unless it is implemented globally. The tax would need to be approved by the UK in order to be implemented across the EU. The commission has said that if the UK vetoed the tax, it would look to implement it across the eurozone.

The proposal would apply a tax of 0.1 per cent on trading of stocks and bonds, with a 0.01 per cent rate for derivatives contracts. Those minimum rates would apply throughout all 27 EU nations.

However, Julie Patterson, the director of Authorised Funds and Tax at the IMA, says pension and Ucits fund investors could be taxed more than once.

She says: “Pension funds could be hit twice by this tax: when the fund manager arranges a transaction on behalf of the fund and when the fund acquires or sells that asset.

“Ucits investors could be hit three times, as they may also be taxed when they buy units in the fund.”

While some products will be caught more than once, insurance-based investment products would avoid the tax altogether, based on the fact they are not strictly ‘financial instruments’ says Patterson.

She warns such a tax could “create distortions between Europe and other key financial centres” and ultimately lead to a loss of business in the eurozone.

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