ICC in the Financial Times

  • 24 November 2011
ICC Experts

The below Letter to the Editor, co-signed by the Chair of the ICC Commission on Taxation, appeared in print and online editions of the Financial Times today.

We need tax policies that will foster sustainable growth from Mr Chris Lenon, Mr Theo Keijzer and Mr Krister Andersson.

Sir, The debate about the pros and cons of a financial transaction tax continues. Different governments either support it or oppose it. The business community opposes its introduction for reasons unrelated to the financial sector impact.

The reasons are many. The FTT will reduce the number of transactions and hinder optimal reallocation of assets. A proper risk adjustment will therefore take place first when market developments are sufficiently large to also pay for the tax. As a consequence of the “sand in the wheels”, risk will increase and investors will require compensation. This will increase costs and will make corporate investments more expensive. To some extent, this increase in cost can be avoided if transactions are shifted out of Europe but then the objective of the proposal will not be met. We look back to the experience of Sweden in the 1980s which was disastrous for Sweden (and very beneficial for London). Some have suggested that a different “recipe” will avoid this problem now – none of our Swedish colleagues believe this. Some compare the FTT to UK stamp duty, this is a false comparison in terms of which transactions are subject to stamp duty and the mechanisms tolerated that allow its avoidance. Stamp duty is a tax on some transactions, not all.

The European Commission has analysed where the burden of the tax will fall and the effect on gross domestic product, and this is key. The FTT is born by the customers of the financial sector: businesses, individuals, pension funds, pensioners and buyers of financial products. The Commission’s assessment is that an FTT could reduce GDP by as much as almost 2 per cent at a time when all politicians are searching for a recipe to stimulate growth. Some delegates of the recent meeting of the EU’s economic and financial affairs council, Ecofin, questioned whether the costs would not be even higher.

Given the delicate state of the European and global economies we need international tax policies that do not add fire to an already volatile market and wobbly economy but which provide government revenues while fostering sustainable growth. While an FTT would indeed raise some government revenues in the short term, it would immediately negatively affect the economy and not foster growth. That is why the business community opposes this tax.

Chris Lenon, Chairman, Business and Industry Tax Advisory Committee to the Organisation for Economic Co-operation and Development

Theo Keijzer, Chairman, Taxation Commission of the International Chamber of Commerce, Paris

Krister Andersson, Chairman, Tax Policy Group, Businesseurope