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Financial transaction tax – time to address the technology challenge

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London, 10th December 2020Originally published by Reuters on 2nd December, Delta Capita’s Gary Bullock discusses the upcoming Financial Transaction Tax (FTT), the effects it will have on organisations and how firms will need to embrace modern technology.

For almost a decade, an EU-wide financial transaction tax (FTT) has been on the European legislative agenda. The 2008 financial crisis created significant political pressure to ensure the financial sector contributed fairly to the costs of the crisis, causing many countries to consider creating a levy on financial transactions such as the purchase or sale of equities, derivatives and foreign exchange.

As a result, in 2012 France introduced an FTT on equity and high-frequency trades, swiftly followed by Italy implementing a levy on equity, derivative and high-frequency trades in 2013. Financial transaction taxes have continued to be the subject of debate across Europe in recent years, but the urgent need for revenue created by the COVID-19 pandemic has prompted a renewed focus. Suddenly the prospect of further countries implementing financial taxes on equity trading has become far more likely, and all of those countries will have individual rules and reporting requirements until a common EU-wide FTT is agreed.

Spain has already approved legislation for an FTT which will come into effect in January 2021 and there are strong expectations that Germany will introduce the tax in the third quarter of 2021, although that is yet to be confirmed formally. Outside Europe, Joe Biden, U.S. president-elect, discussed a potential FTT during his presidential campaign, but it remains to be seen if it will form part of his taxation plans following inauguration.

Given the tight deadlines involved with implementing the Spanish FTT requirements, planning ahead has been difficult and many firms are simply scrambling to deliver an immediate solution. With the spectre of a German — and potentially a wider EU — FTT over time, firms should not underestimate the regulatory challenge ahead. Spreadsheets and many in-house platforms with hard-coded rules are unlikely to deliver the functionality and scalability required to manage the regulatory requirements of FTT across multiple tax regimes and ensure timely compliance with the rules.

A tipping point has been reached where firms should consider embracing modern technology to cope with the increasing complexity of FTT requirements, or risk failing to comply. Firms can either create their own fully-automated in-house solution, or turn to outsourced service providers to manage the process. An automated FTT solution reduces the error risk inherent with manual systems and ensures full compliance without the need for an increase in headcount or to develop and test new software each time a new market is introduced.

The FTT challenge is set to grow with the addition of Spain. If Germany decides to follow suit, the compliance burden will increase significantly. Affected firms need to prepare themselves now for the increasingly complex calculations and reporting demands of multiple tax authorities, scaling their FTT solutions through the effective use of technology and freeing up expensive and specialist employees for more valuable revenue-generating projects.

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Originally published by Thomson Reuters © Thomson Reuters on 2nd December 2020.