1 Ecosocial Forum Europe Conference A New Basis to Finance International Duties VIENNA JUNE 2006

2 Implementation technical and legal aspects prof. Mr. L.A. Denys Currency Transactions Tax

3 Context: THE GLOBAL FOREIGN EXCHANGE MARKET equals forex trading : annual forex turnover : à billion $ = one year daily forex turnover : billion $ = one day world financial assets : billion $ world gdp : billion $ = one month world trade (goods & services) : billion $ = one week official development assistance (2004) : 70 billion $ = 15 minutes Mill. Development Goals needs (2006) : 135 billion $ = 30 minutes Mill. Development Goods needs in 2015 : 195 billion $ = 45 minutes ! Austria 2000 billion €

4 Context: THE GLOBAL FOREX MARKET (cont’d) annual turnover : 400 à $ daily forex turnover : $ average value per transaction (payment instruction) : $ (200 to 500 million $ per transaction is not abnormal) price setting : 20 times per minute exchange rate can alter several thousand times a day 40 % transactions concluded in 3 days 80 % transactions concluded within a week

5 Context : THE GLOBAL FOREX MARKET (cont’d) market share : 80 % in 11 financial centers –London City : 33 % –US : 18 % –Japan : 9 % –Singapore : 7 % –Germany : 5 % –Switzerland : 4 % –Hongkong : 4 % –France : 4 % –remaining 18 % : 8 countries account for 14 %

6 Context : THE GLOBAL FOREX MARKET (cont’d) market share : 90 % in 7 currencies –US $ : 45 % –€ : 19 % –Yen : 11 % –£ : 8 % –Sw F : 3 % –CN$ : 2,3 % –AUS$ : 2,1 %

7 Context : THE GLOBAL FOREX MARKET (cont’d) worldwide market makers : 20 banking system : –UK : 17 banks have 75 % market share –US : 13 banks have 75 % market share 10 ww- banking groups have 50 % market share

8 CTT : Estimated Potential Revenue globally : + 50 to 200 billion $ EU & Switzerland : 0,01 to 0,02 % = to billion $ UNU – Wider report : +/- 30 billion $ EU-commission estimates revenues at 0.01 % = 15 billion €

9 Currency Transactions Tax legistic inspiration of draft treaty indirect tax on transactions Residence / source / origin / destination irrelevant ? Market tax mechanism taxable transactions exchanges of currencies financial instruments having equivalent effect taxable event : payment – settlement location : parties / intermediaries / currency taxable persons / tax liability Intermediary MN O – single entity Reverse charge - joint liability tax rates (minimal) normal rate on all transactions within bandwidth (e.g. Belgium 0,02 %) (dissuasive) surcharge only on transactions with one currency in excessive fluctuation (e.g. Belgium 80 %) taxation at wholesale level (settlement)

10 CTT is a « GLOBAL » tax treaty based global tax base global localisation avoiding international double taxation foregoing international tax avoidance ; simplicity – compliance costs (transactions costs) - minimal rate and world global wholesale financial market & legal security risk collection through global architecture of financial sector supervised by Central Bank / Prudential supervision, (payment settlement, CLSB) MNO local implementation (administration enforcement), global administrative & judicial monetary cooperation funding of global public goods : redistribution of resources / democratic allocation of funds tax burden on labour & household consumption vs capital (quid other capital markets)

11 Taxation at wholesale level central Banks control legal tender (national payment systems) settlement institutions & CLS –Provided by Central Banks –Groups 70 fin. org. instit. & serves fin. memb. cust. –Aims at 80 % market share prudential supervision intra MNO transactions : –Single entity – consolidated approach –External auditing reverse taxation ; joint liability ML – legislation ; EU financial interest

12 Tax avoidance & evasion : -delocalisation, deferral, substitution -payment and settlement system ; world financial architecture -joint liability ; reverse charges -single entity – approach MNO’s -external auditors role International cooperation in -administrative tax control and collection tax -financial police and judicial enforcements -money laundering regulations & Financial Intelligence Units

13 Unilateral European Ctt Law 1. PROCEDURE shared competence in tax matters MS can introduce ; EU can harmonize unanimity at EU required ; Enchanced cooperation possible ; min. 9 shared competence in development policy in Eurozone : monetary surcharge exclusive EU competence ; Cooperation ECB preferably : EU – Directive and Member State implementation (administration)

14 Unilateral European CTT law 2. SUBSTANCE concurrence of EU and CTT objectives principles of internal market non discrimination vs. Justified distinction and acceptable fiscal disparity (CTT = distinct financial market (value fluctuation risk) with global economy benefits ; coexistence of Euro and other currencies in principle acceptable) free movement of capital, e.a. - Global and neutral tax base - Low rate : no market distortion - Justifications : development policy and monetary policy EC Commission Reports

15 Currency Transactions Tax