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Chas Roy-Chowdhury-14

By Chas Roy-Chowdhury, head of taxation, ACCA

The news about the proposed Financial Transaction Tax, for the 11 EU member states that have signed up to adopt it under the procedure of “enhanced cooperation”, being potentially illegal, has created a lot of debate.

The tax, although to make sure that the financial sector makes a fair and substantial contribution to public finances and pays back at least part of what the European taxpayers had to  pre-finance during bank rescue operations, could have quite the opposite effect.

The legislative proposal – should it ever come into effect, as  the timeline foreseen for adoption of this controversial proposal by 2014 is not likely to be met – suggests to levy the tax on all financial transactions, provided that one of the parties is domiciled in one of the 11 participating countries. If one of the parties concerned is outside the FTT system, the taxing country – an FTT participant – would collect the tax to be paid by the institution as well as the tax paid on its own territory. The result could be that member states willing to adopt the measure will essentially be limiting their trade with countries which have not adopted it

A global approach needs to be agreed on to implement some form of FTT that would work for all, and help economic recovery by encouraging global trade.

The tax in its current form, as proposed by the European Commission, , while up to each participating country, would need to be tightly ring-fenced to be within their own territories and not extra-territorially as currently proposed, otherwise, according to the Council’s legal service opinion dating 6 September, this situation would be “discriminatory” in certain respects, and could result in “a distortion of capital movements” as well as in the unjustified exercise by participating countries of their jurisdiction “over entities outside the area concerned by the legislation.

In addition, the FTT as it stands, could risk being footed by the consumer rather than the banks it was intended to levy.

In a Financial Times article last week, it came up with some points on the legal debate of the implications in introducing an FTT:

  1. This is an unusually clear, blunt and damning legal opinion on a flagship European Commission proposal. Most Council legal service opinions are a model of equivocation. To be as forthright as this, the service needs to be absolutely confident about the legal argument, or enjoy a permissive political backdrop to make the case (i.e. important finance ministries either agree or are not displeased to see the opinion published).
  2. It is non-binding. This is not formally the end of the FTT — the talks go on. The Commission legal service completely disagrees with the Council’s viewpoint and will likely respond. Such differences are not unusual, far from it. What is rare is for the differences to be put to paper so starkly. This is not a happy moment for the Commission, especially given the political capital it spent on promoting this proposal.
  3. The politics was already moving against the most ambitious models for a Eurozone FTT. Many of the 11 euro area states looking to agree an FTT have been public about their reservations — France, Italy, Spain and (to a degree) even Germany. This opinion will likely accelerate the process of scaling back the original Commission proposal. That applies to its reach beyond the Eurozone, the range of transactions it covers and the rate that is applied.
  4. This may well be the death-knell for the so-called “residence principle”. This Commission-designed provision basically meant that financial institutions were taxed according to where their headquarters are based, rather than where the trade is executed. It was the crucial anti-avoidance provision that meant the FTT covered trades in London, Singapore and New York. The Council legal service basically argues that one of the core parts of that provision is unlawful because of its impact on states outside the FTT zone.
  5. An FTT could still emerge, albeit in far less ambitious form. The legal attack on the residence principle naturally gives a boost to those countries that are happier to see a stamp duty style tax. That imposes a levy depending on where the instruments are issued, rather than where the people trading it are based. The trouble is that it is much harder to design a stamp duty for derivatives — the instruments the FTT was primarily intended to target.
  6. This is a big win for the UK, which has long been making the case that the FTT is illegal and extraterritorial. That said, the legal challenge lodged by the UK strictly addressed a different issue — the process by which the 11 Eurozone states decided to move ahead as a vanguard to agree a tax that other EU states rejected. Nevertheless it is almost certain that the UK would sue over the residence principle as well, if it ever emerged in practice.

This tax was always going to be difficult to agree and implement. The Commission will now have to present solid arguments to member states and may potentially have to narrow the scope of its proposal. FTT should ideally only be implemented after global agreement otherwise it may cause those member states adopting the tax to lose financial sector businesses and jobs. In addition the Commissions own calculations showed that if FTT were introduced across the EU it would reduce growth by 0.3%. If such a growth reduction were to occur across only eleven member states then the negative growth could be even greater for the adopters.



By Rosana Mirkovic, head of SME policy, ACCA

With such unprecedented focus on this topic throughout 2012, it’s difficult to imagine how such a high level of interest and activity can be sustained. Will the record increase in female NED appointments continue?

A voluntary target of 25 per cent of directors to be female by 2015 has been set in the Lord Davies report and it seems that companies are heading in the right direction towards achieving it – women now account for 17.4 per cent of the FTSE 100 board directors.

And what will happen with the European Commission proposals? In November the EC published its much awaited proposal for there to be at least 40 per cent women non-executive directors on the boards of big-listed companies by 2020. There is still debate on what this means in practice and to what extent will this translate into quotas for companies. It would appear the proposals deliberately avoid the term ‘quotas’ and instead refer to a 40 per cent ‘objective’, with unspecified sanctions against companies flouting the rules.

It is clear that over the past two years the gender equality debate has by and large been dominated by the women on board debate. It certainly has some high profile ambassadors. What we must ensure now is that we use this momentum to broaden the discussions.

We know that women are under-represented at senior levels in virtually all areas of economic activity and especially those with high financial rewards. While higher numbers of female non-executive directors would go some way towards addressing this, there is scarce evidence that it would change anything else.

In fact the Norway example that is so often used for the quota argument shows that despite 35 per cent of female NEDs on Norway’s publicly listed company boards, there has been no increase of female representation at the CEO level.

The UK is heading in the same direction – only 6.6 per cent of the FTSE 100 and 4.9 per cent of FTSE 250 of executive directors are women. In October 2012, two female FTSE 100 chief executives resigned (Cynthia Carroll and Dame Majorie Scardino) and once their resignations come into effect, this will cut in half the number of women holding the top spot at a blue-chip company (Alison Cooper at Imperial Tobacco and Burberry’s Angela Ahrendts will be the only two FTSE 100 female chief executives standing).

And this is what we are acutely lacking – a focus on why women remain under-represented in senior management positions. Issues such as stereotypes, the cost of childcare, pay inequality are the really difficult issues that are lacking high profile supporters and that are infinitely more difficult to solve and commit to such short-term targets. Two reports released last month (see here and here) show that for all the talk of women on boards, and there has been plenty, there has been no change in the prospects of women running big businesses. And this points towards a real danger of the women on boards debate overshadowing the real issues.

ACCA’s own research shows that stereotypes still remain despite the unprecedented focus of female board appointments. For this reason the language of finance is seen to help break down some persistent stereotypes about women’s competence and emotional nature. Finance is also seen as the language of the board and for women with a finance background it gives them access to the conversations. Thus, the finance qualification is seen as a masculine qualification that combats some of the female stereotypes.

We need more research that helps us understand better what is hindering women in their careers and more importantly, what is helping them succeed. The women on boards agenda does very little on this front yet it is the only issue we should be looking at. Once we have more women leading our businesses, it would seem the rest would take care of itself, including the numbers of women at board level.

After all, our research shows that for every board member in the FTSE 100, there are 5,500 employees, demonstrating a real need for a more bottom-up approach.