However you look at it, some kind of French transaction tax looks likely, possibly unilaterally.
Sarkozy has said he wants to impose one in August if he’s elected. And if he’s not elected? Francois Holland wants one too.
The tax, as defined by Sarkozy, would be levied at a rate of 0.1% on credit default swaps and equities trades.
And yet, it may not be as simple as that. The Financial Times claims today that:
“…in many cases it will be irrelevant where a bank is headquartered, since the tax will be levied on the transaction dependent on where the end client is located. For a French client, it will make no difference whether the bank carrying out the transaction is based in Paris or London.”
Philip Martin, the former co-head of global tax at Nomura and now an independent tax consultant, confirms that French banks may not be able to escape the tax simply by relocating to London. Nor, more worryingly, may actual French bankers.
A document from the European Union on the imposition of an EU-wide tax suggests the tax would be imposed both on EU companies and on EU-resident individuals. It seems likely the French tax would work on the same basis.
“If you are a French company based in France, you are clearly a French resident,” says Martin. “But if you’re a UK-based subsidiary, are you still a French resident?”
Taking a lead from the EU, the French government could also opt to define residency and eligibility for the transaction tax at an individual level. “If you are a French man living in London, you could be considered as resident for the purpose of the transaction tax,” suggests Martin. “It could be the case that if you were a French man working for a US bank in London, transactions you undertake would be eligible for the tax,” he adds.
Until the French government clarifies how the tax will be implemented, this situation remains hypothetical. But in the event the tax is applied on the basis of nationality, the outcome would be clear: French bankers in London would become unemployable.