Forex financial transaction tax
At a time when Europe is looking to kick start its economies, this is a clear brake on growth. The European Commission has already explicitly excluded FX spot transactions from the scope of any tax.
However, as the GFXD points out, imposing an FTT on other FX products heavily traded by these users — specifically FX forwards, swaps, options and NDFs — risks discouraging companies and investors from international trade and investing.
If they continue with international activities, then the impact will be to either see them reduce the hedging of their international activities — with the resultant increase in earnings volatility and business risk — or to take on the additional tax costs that they could otherwise have directed to growth or to delivering fund returns for investors. Businesses involved in international trade often have multiple income and payment streams in different currencies as they export and import goods and raw materials.
Access to cost effective hedging and funding — through these FX products — allows them to trade internationally with certainty on their FX exposures.
By imposing an FTT, these European corporates will see their FX transaction costs rise by up to percent. The tax creates a disincentive for international trade, investment and growth.
Financial transaction tax - Wikipedia
Pension funds using FX. A pension fund manager investing globally has multiple cash flows in different currencies on various pension portfolios. The fund manager needs to be able to convert all these currency flows into a single balance on a weekly basis, undertaking FX transactions to meet liabilities in different currencies.
These pension fund investors benefit from access to a cost-effective FX swaps market. For a pension fund manager, the FTT impact is compounded due to the double sided nature of the proposed tax and these users could see transaction costs rise by around 1, percent and possibly by as much as 4, percent.
These costs will be passed onto investors in the form of poorer investment returns. It is worth noting that in , the European Commission recognised that including FX spot transactions in the FTT would infringe the movement of capital under the Treaty for the Functioning of the European Union and it also raised concerns about including other FX products.
FX products are central to their ability to do this. In addition, the proposed tax risks becoming a disincentive for businesses to hedge risk which could increase their earnings volatility and business risk.
Germany’s Push for Financial Transaction Tax Is Bad News for Traders | Finance Magnates
The result will be reduced fund performance to the detriment of institutional and individual investors. The Briefing Note is available at the following link: For more information, visit http: Events News Correspondence Initiatives About. Corporates using FX Businesses involved in international trade often have multiple income and payment streams in different currencies as they export and import goods and raw materials.
Pension funds using FX A pension fund manager investing globally has multiple cash flows in different currencies on various pension portfolios.
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