The proposed European Financial Transaction Tax would cost UK pension scheme members £1bn a year, according to estimates from the National Association of Pension Funds.
Speaking at the Money Marketing Retirement Planning Summit in Cork last week, NAPF EU policy lead James Walsh warned the FTT would have a dramatic effect on British savers despite the fact the UK is not one of the 11 member states looking to push ahead with the tax.
The proposed FTT would levy a 0.01 per cent charge on derivatives transactions and 0.1 per cent on the transactions of other investments, including securities, equities, Ucits and foreign exchange trading.
Eleven member states, including France and Germany, are looking to push ahead with an enhanced co-operation procedure to create the tax on their own, due to resistance from other EU member states.
Walsh warned delegates that UK pension schemes investing or trading in securities issued in any of the 11 states would face the tax on such transactions as well as when dealing with branches of financial firms which have their headquarters in one of the 11 countries.
Walsh said: “The problem is this proposal would not just affect those member states, France and Germany, it would effect pension schemes in the UK as well.
“If you are a pension scheme and you transact a security that was issued in one of those 11 member states, the transaction will be deemed to have taken place in that country and the tax will apply. If you deal with the branch with headquarters in one of the 11 countries, the same applies.”
Walsh said one NAPF member had calculated it would have had to pay £35m last year under the proposals, while another reported it would have been charged £5m. Overall, Walsh said it could cost UK schemes £1bn a year, with the costs past down to savers.
Walsh also highlighted practical problems such as HMRC having to set up a transmission mechanism to pass the tax to the tax authorities of the 11 member states.
The FTT was set to be introduced at the start of next year but Walsh said this was now highly unlikely due to arguments over detail between the 11 states, for instance Italy wants government bonds excluded form the tax.
The UK has also launched a challenge to the FTT in the European Courts of Justice on the grounds that it will have a significant impact on countries outside the 11. “That looks like a pretty good challenge to me,” said Walsh.
He added: “This is going nowhere fast. What might happen is that at some point it will be introduced, perhaps first in a narrower form but in future years it might have its remit and the base of the tax expanded to a wider base.”