France’s New Levy on Financial Transactions Concerns Small Investors

France has started its tax collection for financial transactions on November and it is becoming pretty clear that Francois Hollande implemented levy is affecting everyone, but, not whom he initially intended to: the big investors. Incidentally, during the election campaign, Hollande stated that finance is his main adversary.

Last August, Hollande decided to push through a 0.2% transaction to be implied on share purchases. This decision made France the first ever country in the entire world to take such a bold step. To escape this tax, many investors are however investing in stocks with help of contracts (They basically are using CFDs), without owning the share directly. With CFDs, one can bet on whether the stock will gain or loss, however, no direct ownership is required.

Jacques Porta, an Investment Manager at Ofi Patrimoine rightfully stated that the main target of this levy was investors who basically put in their black money in the stocks. Hollande actually intended to get at least some portion of the black money back for country’s betterment. However, it seems that the small investors have been punished more due to this decision and they definitely are afraid seeing the losses in the market.

It is estimated that this tax collection will bring around $700 million in France’s budget in 2012 and around $2 billion in 2013. However, Finance Ministry officials clearly stated that these are estimates only and it’s still not the time to comment on whether these statistics are realistic or not. However, they stated that they are aware of the extra burden put on the small investors through this levy and soon, they will try to do something about it.

This week, Hollande himself stated that the extra tax has only been a modest blow to the speculators of the market. He also mentioned that on 19th December, his Government will present a new bank bill. It is expected that Hollande will soon start splitting the retail and investment activities of French Banks. Additionally, the Government may also decide to increase tax on lenders’ salaries. However, the Government will probably not put any levy on CFDs or any other derivatives which are not directly related to a particular territory.

Gerard Rameix, the chief of Independent Market Authority Regulator of France stated that though the tax may not have successfully curbed speculation, thanks to the levy, Hollande has definitely gained political capital and was able to send a strong political message, thereby burnishing his socialist credentials. Rameix also added that if other countries also start imposing such taxes, the basis of the levy will broaden not only geographically, but technically as well. Only then, the efficiency of this levy system will probably get to a better level.

Incidentally, the volume of share changing hands in CAC 40 was 44% lower today, if compared to the 30-day average. After declining by 0.5%, CAC 40 is now at 3383.4 (This marks the lowest value of CAC 40 for November, 2012).

Hollande expects several other European countries to impose taxes as well to make the impact of this taxation even stronger. Some of these countries include: Greece, Slovenia, Germany, The Netherlands, Portugal, Belgium, Spain, Italy etc. He stated that the taxation procedures in those countries may start right after the EU Council Meeting in December.

According to reports, this new tax will also be applied on American Depository Receipts (ADRs) starting from 1st December. Incidentally, ADRs allow investors to trade foreign stocks just like they would do in domestic shares eliminating the need of currency exchanges. ADRs are issued by US based banks and it is not clear that how France Government will impose tax on the same. Particulars, however, are expected to be out soon, according to an official of France’s Finance Ministry.