The financial transaction tax (FTT), the controversial proposal being taken forward by 11 European countries, has been criticised for its effect on financial institutions regardless of their “social function”.

PensionsEurope, the lobby group, said the tax in its current form would affect pension funds badly, even if they were exempt.

Eleven EU countries (EU11) are currently pushing forward with the tax despite opposition from the Netherlands and the UK, with the latter legally challenging the Commission and Council’s decision to allow the countries ‘enhanced cooperation’ status.

However, the European Court of Justice (ECJ) dismissed the case on the basis the enhanced cooperation was legally sound.

It also said any UK challenge to the FTT could not yet be heard as enough detail over the tax’s implementation did not exist.

The UK is expected challenge the tax again once the EU11 moves forward with its plans, arguing the tax’s implementation will indirectly affect the UK financial sector.

PensionsEurope said, even with an exemption for pension fund investments, the tax would increase the cost for the institutions.

It said all financial transactions of all institutions would be hit by additional costs, regardless of their social function or role in the financial crisis, or the nature of their investment.

Matti Leppälä, chief executive of the lobby group, said: “The consequent increase of costs will ultimately be borne by the pension beneficiaries in terms of higher contributions or reduced benefits.

“There is no cause to ask European pension beneficiaries to pay for the crisis. They did not cause it but rather they have suffered from it.”

Leppälä stressed that asset managers would also eventually pass on the tax to pension funds, even if the funds were exempt.

“As institutional investors, we are customers in the financial markets, and we therefore fear that, as it is the case with other taxes, the final customer will end up paying for it,” he said. 

The organisation called on the EU11 to dismiss the tax, or at least ensure exemption for pension funds.

“Pension funds did not require any support in terms of funding from public finances during the crisis,” he said.

“They actually contributed to water down the crisis by keeping their long-term liabilities in the financial markets.”

However, Algirdas Šemeta, the European commissioner responsible for taxation, yesterday praised the EU11 for pushing forward with the tax and laying down an implementation roadmap.

“The participating member states need to continue to invest wholeheartedly in this file to make it law within the timeframe foreseen,” he said.

“If they make a common FTT a reality, that is a major achievement, even if they proceed more tentatively than was envisaged.

“But now this has to happen, and happen quickly.”

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