The European Parliament has moved ahead with a tax on financial transactions, but as the United Kingdom and other countries still oppose the measure, experts say it is unlikely to go into effect in the immediate future.
On Wednesday, lawmakers for the European Union voted 487 to 156 in favor of the tax, with 46 abstentions. However, tax issues in the E.U. must be approved by all member nations, and United Kingdom Prime Minister David Cameron has already vowed opposition to the bill.
Sameer Samana, an international strategist at Wells Fargo Advisors, said he does not anticipate the tax being implemented, but notes that the past several months have been extraordinary for Europe.
“It still seems as if it’s unlikely, but as we’ve seen so far this year, anything can happen,” Samana said.
A financial transaction tax — sometimes called a Tobin tax, after the Nobel Prize-winning economist James Tobin, who first backed the idea in the 1970s — would impose a fee of a fraction of a percent on certain securities transactions.
The measure Europe’s Parliament passed on Wednesday would tax trades of stocks and bonds at 0.1 percent and tax trades of derivatives at 0.01 percent. Under the bill, the tax would be due on all transactions in which at least one institution is located within the E.U. Financial institutions outside of Europe would also be obliged to pay the tax for securities originally issued in the E.U. Pension funds would be exempted from the tax.
In order to discourage tax avoidance, the bill specifies that any buyer who fails to pay the tax would not legally own the traded security.
Advocates of the plan argue that governments have used taxpayer money to bail out the financial system, so it is only fair to tax financial transactions as a way to get some of that money back. They further argue the tax will help curb speculation and high-frequency trading.
However, Prime Minister Cameron has called the tax a bad idea that would cost jobs and make Europe less competitive. He vowed on Wednesday to “fight it all the way.”
Austria, Belgium, Finland, France, Germany, Greece, Italy, Portugal and Spain have all come out in favor of the tax and could implement it themselves even if countries like the U.K. and Sweden opt out.
Samana noted that the Eurozone nations considering the measure are the ones in the most trouble economically, and passage of the tax could further undermine their financial markets.
“It would just exacerbate the situation the Eurozone’s already facing,” Samana said. “It’s even more reason to take capital and transactions away from them.”
Another implication of the tax is that even if it doesn’t pass, its debate among European politicians could strike yet another blow to investor confidence. Samana said Wells Fargo is currently underweighting Europe and advising clients to avoid the continent.
The prospect of France and Germany instituting strict new regimes on financial services has many observers wondering if the net effect could be businesses in Paris and Frankfurt simply decamping for a friendlier regulatory environment across the English Channel. But David Gubbay, a tax partner in the London office of international law firm Dechert, is worried Britain could be considered guilty by association.
“The risk is, from London’s perspective, even if the tax is not implemented on an E.U.-wide basis, it may still tarnish and affect London and drive business out to the U.S. and the Far East,” Gubbay said.
He added that while the measure will have to go back to the European Commission before further action is taken, a financial transaction tax certainly has momentum behind it and Europe is not likely to drop the idea any time soon.
