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II)     General comments and observations:

A.     Already the definition of the occurrence which generates the tax duty seems quiet uncertain and problematic. According to art. 2 point 1 point (1) of the directive, "financial transaction" means inter alia: "the purchase and sale of a financial instrument before netting and settlement, including repurchase and reverse repurchase and securities lending and borrowing agreements". Such wording may suggest, that in fact one and the same transaction could be taxed twice - covering both parties of the transaction, namely the purchasing party and the selling party as well - should both of the parties fulfill all necessary remaining premises of being a taxpayer by meaning of the directive. Therefore the fixed level of rates in fact would be doubled.

B.     Same important and in our opinion unjustified is the provision according to which "the FTT shall become chargeable for each financial transaction at the moment it occurs"; "Subsequent cancellation or rectification of a financial transaction shall have no effect on chargeability, except for cases of error" (article. 4). I our view, such a regulation has to be considered as absolutely harmful. Not only a new tax is going to be established, but moreover occasionally it may cover transactions which in fact never have occurred! Summing up, taxpayers may have to pay tax rates for not existing transactions. Especially from the businesses point of view such a solution seems unacceptable, also taking into account economic certainty which seems so indispensible these days. However, it is our opinion that establishing a tax-obligation, notwithstanding there is no real economic relation behind, may result in lack of such confidence. More importantly, what reasonable arguments justify the chargeability of an entrepreneur meanwhile the entrepreneur cancels a transaction - he may once intended to realize - which however as a matter of fact was never accomplished as a result of a reasonable and intended business decision? Especially in these situations, where no economic transfer took place, the justification for any taxation is unclear and highly questionable.

C.    We also would like to highlight the fact, that the directive does not provide a clear and unequivocal definition concerning those transactions which are to be excluded from the FTT. Indeed article 1 point. 4 of the directive seems to specify the scope and subject matter of the directive by pointing out certain transactions which would be excluded.  Nevertheless, according to article. 7 of the preamble of the directive: „...contracts relevant for citizens and businesses such as conclusion of insurance contracts, mortgage lending, consumer credit or payment services should be excluded from the scope of FTT..." However, this matter does not find reflection in any specified provisions in the directive. Therefore such inconsistence may cause huge problems in regard to the proper implementation of the directive into the legal systems of the member states, including Poland. More importantly, once an incorrect implementation has been done, resulting legal uncertainty and disputes with domestic tax authorities cannot be excluded, and moreover should be expected. Finally it will be necessary to repeal to courts of administration in order to resolve such uncertainty. What's important, the necessity to initiate those legal procedures simply generates a huge amount of costs and expenses for businesses.     

D.    Furthermore, another potential administrative burden for businesses needs to be pointed out. In article 10 of the directive, payment procedures in regard to the FTT are specified. However, presumably they also will result in higher costs. First of all, the financial transaction - taxpayer will be obliged to organize within his own resources a well functioning and effective framework allowing to properly fulfill the payment duty. This however, as already mentioned is a costly and questionable time and effort.   

Moreover, according to the directive, an FTT due is to be paid to the tax authorities:

i)                   at the moment when the tax becomes chargeable in case the transaction is carried out electronically;

ii)                  within three working days from the moment the tax becomes chargeable in all other cases (art. 10 point 4).

As we understand it properly, in all cases except those where transactions are carried out electronically, three working days for realizing the payment duty set in the directive, shall be a sufficient period of time. In our opinion such a deadline constitutes yet another impediment for businesses. It has to be kept in mind that within those three days the taxpayer has to properly calculate and effectively pay the tax. However, a period of three days generates a high risk of mistakes and errors, which may result in the liability of the taxpayers. Thus, it is our belief, that authorities should not create obligations which are difficult and risky to comply with by entities. 

Also, regardless of the provision stated in article 4, which in our opinion is harmful and should be removed (II.B.), an entity making a transaction in fact would have  only those three days to change or cancel it. Afterwards a cancellation may be unbeneficial because the tax would have been already paid. Of course a reimbursement by tax - authorities cannot be excluded, however causes unnecessary and costly procedures. 

Accordingly it will be not only necessary for businesses to create new procedures, but also member states in fact may be obliged to modify they current tax-codes (regulations), all together yet again resulting in costs.

E.     Another issue at question is the insufficient explanation for establishing the structure of tax-rates on a minimum basis. Pursuant to the explanatory memorandum "the purpose of the subject proposal is to provide a common approach to this issue ..."[2] Therefore, a contrary to the intention of creating a common framework, the tax rates are boundless open to be raised in the future. In practice such a solution, namely the lack of a limitation of tax rates can result in a very freely and maybe disproportionate way of implementing the directive by certain member states.   

F.     Finally, maybe most importantly and also very surprising is the idea to give member states the opportunity to provide a regulation, according to which, a person other than the persons liable for payment of the FTT can be held jointly and severally liable for the payment of the tax (article 9 point 4).  This subject matter is very unclear and quiet difficult to imagine working in practice. Also there is no legal, economic or any other justification for such solution. Why and on which basis one entity should be liable for tax duties (or any other public duties) fulfilled inadequately by any other entity? Once again such a solution seems quiet questionable.

III)   Comments concerning particular branches:

a)     Banking and financial institutions:

A.     The recent economic crisis caused many governments of different member states to take action in order to achieve a higher grade of financial consolidation and more importantly to be prepared for possible and expected social and economic consequences. As regards, we would like to remind, that this subject proposal for a directive, as well as some other EU-documents state, that one of the aims of this initiative is to ensure a contribution of the financial sector to public finances[3]. Keeping that in mind the following statements should be taken into account.

B.     What's important, Poland was not one of those member states who's financial sector needed to be supported by means of public resources. Thus, in cases of financial institutions and affiliations with their habitual residence in Poland, the imposition in form of the FTT seems unjust, taking into account, the main intention of the initiative, which is the compensation of costs caused by the recent crisis because of the "culpable" financial sector. Other already mentioned targets are:

i)                   limiting the undesirable market behavior and thereby stabilizing markets, as well as;

ii)                  avoiding distortions on the internal market[4].

In this context however, the proposal does not take into account the already existing domestic solutions regarding financial markets existing for instance in Poland. We would like to underline, that in common opinions these procedures are considered to be substantial and effective, as well as the self-regulation of the banking sector or the supervision framework. Also, the effectiveness of these solutions successfully contributed to limit consequences of the recent crisis, and avoided the necessity of the states intervention. Thus, PKPP Lewiatan stands on the position, that these particular circumstances should be taken under consideration.

C.    Needless to say, the creation of the FTT is an imposition which will result in setting businesses incomings and thereby their funds lower. Thereupon, each new kind of imposition, should consider the taxpayers actual ability to bear such additional costs not without regard to their capital adequacy. Especially in case of financial institutions, new regulations on bank capital adequacy and liquidity should be taken into account. Accordingly, on one hand the directive is expected to be implemented by member states until the 1^st January 2014, which means that its provisions shall apply from this date. Meanwhile, in the same period of time new bank capital requirements resulting from new regulatory requirements on bank liquidity and bank leverage (Basel III) are entering in to force (2013 - 2018). These requirements already are a huge challenge for banks and other institutions not only in Poland, but in the whole UE. In summary, it seems illogical to undertake action in order to achieve a stabilized market, through avoiding distortions and strengthening the banking system, and simultaneously create regulations, likewise the FTT, which in fact may undermine or impede these objectives.

D.    Finally, we would like to point out that the establishment of the FTT may undoubtedly result in more expensive financial services. As regards banks with their habitual residence in Poland the case is clear and simple - in order to secure their financial liquidity, final services may become more expensive. Even more important from the polish consumers point of view, are cases of banks with foreign capital, where one can expect that in order secure the holding company's (bank's) capital adequacy and liquidity and save expenses, these banks in fact may charge affiliated banks in Poland instead.

b)     Insurance sector:

A.     As regards insurance companies, which also would be covered by the directive at question, PKPP Lewiatan stands on the opinion, that such a solution raises several risks. Again, it is needless to say, that each additional imposition results in higher costs of any business activity and subsequently in more expensive services. As regards the clients of the insurance sector, such regulation may increase the costs of being insured, subsequently decreasing the number of citizens willing to benefit from insurance services. Also, we stand on the position, that these entities, namely insurance companies should be exempted from these kind of tax duties, due to the importance of their business area for the society.

B.     Basically, exactly the same arguments apply to pension funds. The FTT may significantly increase saving costs in regard to retirements. Consequently the FTT will be yet another incentive for citizens not to economize on a voluntarily basis.

IV)   Conclusions:

A.     Summing up, in PKPP Lewiatan's opinion, the proposal for a Council Directive on a common system of financial transaction tax, including the creation of a „global" FTT seems not sufficiently justified. As a matter of fact, the expected benefits, likewise stabilizing markets, avoiding distortions on the internal market may not be achieved by means of this directive. However, certain risks for banks, other financial institutions or insurance companies, but simultaneously for consumers arise. Thereupon the consequences resulting from the FTT established in such a form, may be unbeneficial for businesses and thus for the economic circulation in Poland and in the UE.

B.     Also, as regards financial institutions in the traditional legal sense, the idea of creating a new imposition likewise the FTT, meanwhile in the same time higher capital ratios, as well as capital adequacy and liquidity requirements are entering into force, simply doesn't seem convincing. Thus, in our opinion imposing new capital requirements for financial institutions during the same time in which these objectives seem to be obstructed in achieving, through passing a new tax, seem illogical.

C.    Finally, in terms of legal certainty as well as interpretation matters, the directive leaves a lot to be desired.

PKPP Lewiatan, Warsaw, 7th, December 2011

[1] Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC, Brussels, 28.9.2011, COM(2011) 594 final, page 2 (explanatory memorandum)

[2] Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC, Brussels, 28.9.2011, COM(2011) 594 final, page 2 (explanatory memorandum)

[3] Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC, Brussels, 28.9.2011, COM(2011) 594 final, page 2, 4 - (explanatory memorandum)

[4] Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC, Brussels, 28.9.2011, COM(2011) 594 final, page 4 - (explanatory memorandum)