Global Tax Alert | 11 December 2013

Proposed German coalition agreement supports speedy enactment of a financial transaction tax

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On 27 November 2013, after five weeks of intense negotiations, the German Conservatives (CDU/CSU) and their former opposition party the Social Democrats (SPD) signed a 185-page agreement on the formation of a “grand coalition.”1 The coalition agreement is still subject to approval by a vote of the SPD party members scheduled for 14 December. A vote in the German Parliament to confirm Angela Merkel as German Chancellor is scheduled for 17 December.

The proposed coalition agreement includes the following statement on a financial transaction tax (FTT):

“We want to speedily implement a financial transaction tax with a broad base and a low tax rate through the EU's enhanced cooperation procedure. Such a tax should, as far as possible, cover all financial instruments, in particular shares, bonds, investment units, currency transactions as well as derivative contracts. We want the tax to be designed so as to reduce avoidance. At the same time, it will be necessary to assess the impact and avoid the negative consequences of the tax on pension instruments, small investors and the real economy, while suppressing undesired forms of financial transactions.”2

Further detail

This statement needs to be read in its specific German political context. Last summer, the then German Government consisting of the CDU/ CSU and Liberals was forced to obtain the consent of the then opposition party, the SPD, to the bail-out measures to rescue the Euro. In return, the SPD insisted on the introduction of an FTT. This political pact subsequently determined the German Government's position in the FTT debate. On the assumption that the SPD now joins the Government, Germany's FTT position has arguably now hardened to require the inclusion of currency transactions within the scope of the FTT (which is not contained in the Commission draft Directive of 14 February 2013).

On the other hand, the 2012 conditions for the introduction of the FTT imposed by the Liberals as the then coalition partners, i.e., no adverse consequences on pension instruments, small investors and the real economy, have survived in the current coalition agreement, although the Liberals are no longer represented in the German Parliament.

What does this mean for the EU FTT proposal?

It remains to be seen whether Germany will press for the proposed coalition conditions in forthcoming negotiation at EU level. It is already clear that such a position differs markedly from the French position, which has now moved in favor of a narrowly based FTT in line with French FTT (namely, a tax confined to equities operating solely on the basis of an “issuance” rule). Ultimately, Germany and France may be expected to align their positions in order to keep the EU

FTT project on track. At this stage, significant developments in the EU FTT arena are not anticipated in December 2013. However, discussions between the EU 11 Member States may accelerate in the New Year as Greece (a participating Member State) takes over the Presidency of the European Council from Lithuania, and the new German Government is able to give a clear direction in such negotiations as to how it wishes to proceed with respect to the EU FTT project.


1. For more information, see EY Global Tax Alert, Coalition agreement indicates future German tax policy priorities, dated 27 November 2013.

2. As translated.

For additional information with respect to this Alert, please contact the following:

Legal Ernst & Young LLP (United Kingdom), London
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  • Geoff Lloyd
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Ernst & Young Steuerberatungs - und Wirtschaftsprüfungsgesellschaft mbH, Vienna
  • Thomas Wilhelm
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Ernst & Young LLP, Financial Services Desk, New York
  • Miles Humphrey
    +1 212 773 1425
  • Raffaele Gargiulo
    +1 212 773 3505
  • Sarah Belin-Zerbib
    +1 212 773 9835
Ernst & Young LLP, French Tax Desk, New York
  • Daniel Brandstaetter
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Ernst & Young LLP, UK Tax Desk, New York
  • Amy Smith
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Ernst & Young LLP, UK Tax Desk, New York
  • Michael Moroney
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EYG no. CM4034