The draft proposal for the Financial Transaction Tax (FTT) or Tobin Tax that would affect market participants in the European Union (EU) generates many unanswered questions, according to a ValueWalk opinion piece.
The author found that the document, which requests approval for the FTT from the European Commission, did not indicate how the policy should be enforced or how the tax should be levied.
A Financial Times Brussels Blog post notes that under the proposed policy, financial market participants within the 27-nation European Union (EU) would incur the FTT when trading applicable financial instruments. Many major metropolitan areas that could be affected by such a policy think that implementing the tax would simply result in more trades being done outside the EU.
The proposal outlines the desire to help manage systemic risk and also remunerate the taxpayers who assisted financial firms during the global crisis that began in 2008. While such intentions seem noble, there are several ways to enforce the FTT.
The blog post notes that one way to implement the policy would be to tax derivatives that involve underlying assets from the EU and also financial instruments issued in the region. If the FTT is levied this way, it will result in a wide range of traders outside the EU being taxed.
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