MFA Blog

European FTT Could Have Wide Ranging Effects on Portfolios

Posted on August 9, 2013

The proposed financial transaction tax (FTT) in the European Union could potentially have a large impact on the portfolios of pension funds and other investors.  A recent survey by PricewaterhouseCoopers, highlighted in a Financial Times article, notes that nearly 75% of heads of tax at global companies said that “the FTT would have a ‘significant’ impact on their businesses, while two-thirds said they had conducted some form of impact study on the matter.”

The Financial Times also noted that, given the level of global investment in the European Union, the proposed FTT “has the potential to become a real issue for the continent’s competitiveness on a global level,” according to Alex van der Velden, partner and chief investment officer at asset management firm Ownership Capital.

Mark Persoff, financial services tax partner at Ernst & Young, said, “The application of the EU FTT could result in investment managers looking to rebalance their portfolios to avoid its impact.  Market noise suggests this may have already happened to an extent following the introduction of financial transaction taxes in France and Italy.”

The proposed FTT could also have a number of unintended consequences, the Financial Times wrote, especially in the repo market.  The article further noted that there could likely be a number of pension funds choosing not to use repos (due to costs) as a way to manage risk.  It was noted, however, that the European Commission believes pension funds are important players in the financial markets, and “to exclude them from the tax could create competitive distortions.”

Read more about the FTT and this issue in the Financial Times.