Luxembourg

Details

  • Service: Tax, Financial Services
  • Industry: Financial Services
  • Type: Press release
  • Date: 6/11/2013

Contact

Georges Bock

Managing Partner

Tel. +352 22 51 51 5522

georges.bock@kpmg.lu

How the FTT is missing the mark 

The 11 EU member states backing the ‘Tobin’ tax promote it as a means to limit the excesses of the financial services industry and fight back against ever-riskier financial products, namely hedge funds. However as plans for the tax are made and the details are hammered out, it is becoming increasingly unclear how the measures proposed could possibly meet the outlined objectives.


A recent EFAMA analysis of the potential impact of the FTT provided a breakdown of the annual cost of the FTT for different portfolio transactions. Given the stated aims, it would be logical for riskier products to be most heavily taxed: however, this is not the case.

Over the years, Money Market Funds have earned a well-deserved reputation for being one of the safest financial products, offering less risk exposure to the investor but higher returns than savings deposits. As one of the most conservative investment products, it is therefore quite difficult to understand why those constructing the FTT have singled out MMFs as being the product set to be worst hit by the new tax (50 basis points for MMFs domiciled in the FTT zone and 23 bps for those outside).


The illogical trend doesn’t stop with MMFs. When analyzing the annual cost in basis points by financial product, a distinct trend emerges: the number of basis points is inversely proportional to the size of the risk. Private equity funds are at the bottom of the table, although they are often a riskier form of investment.


This all begs the question: what exactly do those promoting the FTT wish to achieve? Having widely diverged from their original aim of creating a disincentive to investors involved in riskier dealings, FTT zone countries have left those not at the negotiating table scratching their heads over the missing logic.

 

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