EUROPE - Pension funds would be exempted from the proposed financial transaction tax (FTT) under a new resolution passed by the EU's Economic and Monetary Affairs Committee (EMAC) earlier this week.

After a number of MEPs requested various exemptions, the final resolution included a provision waiving the tax on transactions carried out by pension funds.

The resolution was passed on 25 April with 30 votes in favour, 11 against and no abstentions.

The resolution called for the FTT to be better designed in order to catch more traders and ensure that evading the tax "does not pay".

It also said the tax should go ahead even if only some EU member states opt to be included.

The adopted text adds an 'issuance principle' to the European Commission's proposal for the FTT, published in September 2011, whereby financial institutions located outside the FTT zone would also be obliged to pay the FTT if they traded securities originally issued within this zone.

For example, Siemens shares issued in Germany and traded between a Hong Kong institution and one in the US would have to pay the tax.

Under the original proposals, such transactions would have escaped the tax, because it would only have applied to financial institutions based within the FTT zone.

The EMAC resolution keeps the Commission's 'residence principle', which means shares issued outside the FTT zone - but traded by at least one institution established within the zone - would come within the net.

The resolution tightens the rules to make evading the FTT potentially far more expensive than paying it.

The text links payment of the FTT to the acquisition of legal ownership rights, as used for instance in the UK's approach to stamp duty.

This means that if the buyer of a security did not pay the FTT, it would not be legally certain of owning that security and would therefore be unable to clear the trade centrally.

The resolution also provides that if it is impossible to establish the tax on an EU-wide basis from the start, there should be enhanced co-operation.

But it also recognises that introducing the tax in a very limited number of member states could lead to a significant distortion of competition and recommends that measures be taken to address this.

Anni Podimata, the EMAC rapporteur, said: "It is time to change the financial services business model, away from high frequency trading to serving the real economy.

"The committee has been consistent with what parliament has been pushing for, and I now expect member states to show the same consistency with their declarations."

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