1. Veronika Solilova Dana Nerudova Marian Dobranschi
‘FISCAL EU’: FAIR, SUSTAINABLE AND COORDINATED TAX AND SOCIAL POLICIES
An international research consortium working on alternative tax policies and new fiscal models for building the future of EU
Financial Transaction Tax as Genuine Own Resource to Finance the EU Budget
Veronika Solilova
Dana Nerudova
Marian Dobranschi

2. Aim The aim of this paper is to research the revenue potential of mandatory FTT implementation in the EU28 and the possible replacement of VAT-based own resource and GNI-based own resource by FTT-based own resource.
To research this issue is needed to estimate FTT potential revenues and perform simulation of the possible replacement of VAT- and GNI- based own resource by FTT.

3. Introduction - FTT
The European Commission proposed the Directive introducing a common system of FTT in September 2011 with the aim to prevent the fragmentation of the single market, distortions of competition cause by national financial transaction taxes, to ensure substantial contribution of financial sector to public finances and to discourage financial transactions not contributing to the efficiency of the financial markets.
The European Parliament and the European Economic during the consultations returned the FTT proposal back to the European Commission  In 2012 eleven Member States expressed the willingness to introduce FTT through enhanced cooperation based on the Article 20 of the Treaty on the EU and Articles 326 and 334 of the Treaty on the Functioning of the EU.
On February 14, 2013, the Commission adopted Proposal for a Council Directive implementing enhanced cooperation in the area of FTT together with the revised impact assessment.  However, there is no agreement yet.

4. Introduction – Budget
EU budget is financed by own resources mainly (94 % in 2015) – i.e. contributions from EU Member States, covering the gross national income (GNI)-based own resource (68.9 %), traditional own resource (12.8%) and value added tax (VAT)-based own resource (12.3 %).
the EU budget on its own represents only approximately 2% of overall public spending in the EU and 1% of EU GNI, when the total amount of own resources is limited up to 1.23% of EU GNI.
The system of the EU budget own resources is facing huge criticisms 
due to lack of the link between the EU budget and the policy of reaching of smart, inclusive and sustainable growth.
there is no link between revenues and expenditures in the context of the EU policy.
very complicated and complex approach (various permanent and temporary correction).
It does not respect the ability-to-pay measured by GNI, resulting into the non-adequately distributed burden of financing the EU budget among the Member States.
EU budget cannot be considered as sustainability oriented  the sustainability gaps

5. Mandatory FTT as a “genuine own resources”
EU taxes as “genuine own resource” can serve as the tools for reaching smart, sustainable and inclusive growth as set by Europe 2020 Strategy.
Obligatory implementation of FTT can effectively help to decrease some of the sustainability gaps defined by Schratzenstaller et al. (2016).
to decrease the sustainability gap in the area of tax competition through harmonization of the tax bases and tax rates
to stop the decreasing importance of Pigovian taxation  FTT has the character of Pigovian tax  one of the aims of FTT introduction is the prevention of the fragmentation of the single market and the distortions of competition.
to contribute to the fight with tax evasion and tax fraud. Closing the existent loopholes between the different national systems of financial sector taxation through the implementation of harmonized rules and harmonized tax rate (levied on EU level).

6. Methodology - formulas
The tax revenue generated by the FTT is extremely difficult to predict… The parameters affecting the result of estimates include the tax rate, tax base, exemptions, trading volume, volume elasticity in dependence on transactional costs or tax rate, transaction costs, or fiscal evasion and tax fraud.
During two last decades usually 3 formulas were used for the determination of the potential revenues from the FTT in the EU considering dynamic and behavioural aspects  by Jetin and Denys (2005), by McCulloch and Pacillo (2011), by European Commission (2013)
Whereas the current studies always use only one formula for the estimates of the FTT revenues, we apply their combination with respect to the territory, where the tax base of FTT arises i.e. with whom is the financial transactions made  EU territory and rest of the world territory

7. Methodology - formulas
For EU territory transactions are performed between the EU residents:
For rest of the world territory  transaction is performed between EU resident and resident from rest of the world  we assume that only one side of transactions can be taxed:
Eurostat database – the Annual Sector Accounts - Flows and Stocks: Financial transactions – (nasa_10_f_tr) determined according to ESA2010  European Union and the rest of the world  period between 2012 and 2014  DATASET A
World Federation Exchanges (WFE) transactions performed through EU financial markets in 2015 were considered for the purpose of our research  DATASET B

8. Methodology - variables

9. Methodology - estimation
The estimation of the potential FTT revenues was performed for both datasets A and B:
 for five variants in dependence on tax rates
the results of estimations were presented as a range between first and third quartiles.
dataset A were performed for the period between 2012 and 2014 and presented as an average for the researched period.
The paper researched three different scenarios:
static scenario neglects all potential market reactions initiated by implementing the FTT - i.e. elasticity, evasion and relocation effects are not taking into account.
maximum evasion scenario assumes the range of evasion % for derivatives and 5 – 25 % for securities and takes into account other above explained variables.
no evasion scenario assumes no evasion on the markets at all and takes into account transaction costs and elasticities.

10. FTT Revenue Estimations – VAR A (0.1% and 0.01%)

11. FTT Revenue Estimations – VAR B (0.01% and 0.0025%)

12. FTT Revenue Estimations – VAR C (0.05% and 0.005%)

13. FTT Revenue Estimations – VAR D (0.1%)

14. FTT Revenue Estimations – VAR E (0.01%)

15. FTT Revenue Estimations – Dataset WFE

16. Replacement of VAT own resource

17. Replacement of GNI own resource

18. Replacement of VAT own resource

19. Replacement of GNI own resource

20. Conclusion
The replacement of VAT- and GNI-based own resource is based on the linked system of implementation of the FTT in EU – in the form of a full harmonization through the directive  the FTT tax would be levied on EU level and might serve as on new own resource of EU budget, replacing current VAT- or GNI-based own resource.
With respect to the replacement, three scenarios in dependence on different tax rates (variant A-D) were researched on the dataset A and B.
The research revealed that the introduction of the FTT would be able to fully replace GNI- and VAT-based own resource only in case of some EU Member States.
To conclude, we recommend considering the FTT only in connection with the partial replacement of VAT- and GNI-based own resource.

21. Thank you very much for your attention!
Dr. Veronika Solilová, Assoc. Prof. Danuše Nerudová, Dr. Marian Dobranschi
Department of Accounting and Taxes, Faculty of Business and Economic s
Mendel university in Brno, Czech republic