Transactions Tax May Become Useless In France
The law creating a Financial Transaction Tax was adopted in France in August 1. Some experts believe the introduction of this law will result in "zilch" and will mainly hit the private investors.
Online, September 24, 2012 (Newswire.com) - Financial Transaction Tax is coming into effect from August 1 this year in France, it is aimed to protect the markets from excessive volatility and to protect investors from the pernicious influence of speculators.
The new tax will be divided into three parts. The first part is a tax on the purchase of shares in the amount of 0.1% of the transaction (rate could rise up to 0.2% later). It only applies the securities of French companies with capitalization of more than 1 billion euros. A total of109 such companies is listed today. It is assumed that they will bring the largest amount of government funds. The second part of legislation will impose a tax on high frequency tradingof 0.01% on the portion of applications, inserting a number of applications per second to purchase or sale of securities. The third part is a tax on the purchase of CDS (0,1% of the contract value), which will be paid by only those investors who are not tied to a contract asset (by speculators). The market makers, clearing houses, conducting the IPO companies, the participants of repos and employees who receive shares as a bonus will be exempt from paying the new tax.
Despite the apparent forethought of the new tax, its introduction may be useless, the experts say. The investors will still be able to get derivatives such as CFD on the stock market "free of tax". These derivatives can be bet on the rise or fall in the market value of an asset without having to purchase them. This is particularly important because the transaction tax will be paid only if the owner changes the action and not any derivatives. These kinds of tools have been developed in the UK in the 90's of last century to avoid payment of stamp duty (0.5% of the purchase).
«Trading activity will most likely switch to the CFD, as it happened in the UK. This would mean that the major players will be able to avoid payment of the new tax, while small companies and individuals will have to pay it", - quotes the magazine Rebecca Healy The Banker Tabb Group senior analyst.
However another "oversight" of the new law makers is even more ironic: actively attacked by the politicians high-frequency traders will very likely manage to partially avoid it, paying the tax specially developed for themonly. The problem lies in the intricacies of French law: the transfer of the asset ownership happens only at the closing of the trading session, while the main activity of players is observed in the intra-day. That means they will not pay very heavy tax on share trading.
According to Dmitry Chernavski, the financial advisor, the introduction of this tax is fraught with danger that many companies will leave France in search of a more favorable business environment. Dmitry Chernavskisays thatto implement short-term transactions will not be profitable for traders, as the small income from the transaction will all go to the payment of tax. "In this situation, only long term investments can bring profit", - notes Dmitry Chernavski.
"France made a decision, without consulting anyone - it's fascinating indeed. This issue has already been discussed, and we were told that if the tax is not immediately applied worldwide, it will not make sense. But the French preferred to act, and passed a law, rather than waiting for someone to join, "said Dirk Mueller, a trader FinanzethosGmbh, Frankfurt-am-Main.