News &Country Digest This Week’s Top News In 1996 Professor Paul Bernd Spahn proposed an Belgium Supports Tobin Tax alternative version of the Tobin tax. He argued that the Tobin tax could not be effective as a pure trans- by Marc Quaghebeur action tax. Because of its structure, the tax would impair the operations of the international financial The Belgian Parliament has approved a law markets and create liquidity problems without introducing a tax on the exchange of foreign cur- deterring speculation, he said. As a variant of the 3 rency, bank notes, and coins.1 The Chamber of Rep- original proposal, he proposed a two-tier structure resentatives adopted the bill on July 15, and the that consists of a minimal-rate transaction tax (for Senate has not used its right to review it. The bill example, 0.02 percent) on all currency transactions, should be signed by King Albert II and published in and an exchange surcharge that would act as an the official gazette within a few weeks. Belgium will antispeculation device. The surcharge would be trig- be the first country to introduce a Tobin tax, gered only during periods of exchange-rate turbu- although under article 13, paragraph 3 of the law, lence, and on the basis of well-established quantita- the tax cannot enter into force until all member tive criteria. “The minimal-rate transaction tax states of the European Economic and Monetary would function on a continuing basis and raise sub- Union adopt similar legislation. stantial, stable revenues without necessarily impair- ing the normal liquidity function of world financial The Tobin tax is named for James Tobin markets,” Spahn said.4 (1918-2002), an economics professor who was awarded the Nobel prize in 1981 for his analysis of fi- nancial markets and their relationship to govern- The Belgian Tobin-Spahn Tax ment spending decisions, employment, production, and prices. He launched his proposal for a tax on for- The version of the currency exchange tax eign exchange transactions in 1972,2 with the goal of approved by the Belgian Parliament applies to any 5 increasing the independence of monetary policy and person that carries out, in an independent manner, reducing nominal exchange-rate volatility when cap- ital flows freely across international borders. 3Spahn, Paul Bernd, “The Tobin Tax and Exchange Rate Sta- bility,” Finance & Development, International Monetary Fund, June 1996, pp. 24-27. 4Ibid., p. 26. 1 Loi instaurant une taxe sur les opérations de change de de- 5 vises, de billets de banque et de monnaies. To prevent tax evasion and tax fraud, transactions by per- 2 sons who are independent from a legal point of view, but are fi- Tobin, James, The New Economics: One Decade Older. nancially, economically, or organizationally close to a taxpayer, Princeton University Press, 1972, pp. 88-93. are treated as transactions of the taxpayer. Tax Notes International November 29, 2004 • 727 News exchange transactions involving foreign currency, paid into a fund managed by the EMU, after the bank notes, and coins. The tax is levied on any direct deduction of a collection fee to be determined by or indirect currency exchange transactions that take Royal Decree. The proceeds will be used for coopera- place in Belgium, in cash or in futures, whether or tive development, and for the promotion of social and not by giro (a system allowing European banks and ecological justice and the conservation and protec- other financial institutions to move money from one tion of international public goods. account to another via a central computer). Taxable Event Currency Exchange Transaction The taxable event is the element through which A currency exchange transaction is any transfer all statutory conditions are met for the tax to become of the power to exchange — in the capacity of an due. This is deemed to be the case at the time that owner — the currencies of one country against the the Treasury can legally claim payment of the tax currencies of another country.6 Applicable curren- from the taxpayer, regardless of whether the cies include all currencies, bank notes, and coins exchange transaction or its payment occurs before or that are legal means of payment, with the exception after that time. The taxable event occurs at the time of collectibles. The tax also is due on currency the payment is collected or at the time of its settle- exchange transactions under an exchange contract ment, if the payment is made to a third party. on commission. If a currency is exchanged by the Taxable Basis and Tax Rate intermediary of a person acting in his own name, but on behalf of a third party, the latter is deemed to The tax is levied on the gross amount of the have carried out the transaction. Also, the tax is due exchange transaction, including additional expens- on transactions involving financial instruments that es. As proposed by Spahn, the two-tier tax rate con- have the same effect as the exchange of currencies. sists of a normal tax rate of 0.02 percent of the tax- able basis, which applies to all currency exchanges, Localization of the Transaction and a second rate that applies to speculative trans- The currency exchange is deemed to have taken actions (meaning any currency exchange transac- place in Belgium if: tions that are outside the fluctuation margin of a one of the parties or intermediaries involved in central rate to be determined by Royal Decree in the currency exchange is established in relation to a progressive mean rate calculated over Belgium; 20 days). The rate for speculative transactions will be determined by a decision of the EU Council of Eco- the payment, the negotiation, or the order for nomic and Finance Ministers under article 59 of the the exchange is made in Belgium; and EC Treaty, but will not exceed 80 percent. The appli- one of the currencies exchanged is a legal cable tax rate will be determined in relation to the means of payment in Belgium. timing of the taxable event. To prevent the application of these three criteria Tax Liability from leading to multiple taxation in Belgium, an Each taxpayer owes half of the tax on the cur- order of precedence among the criteria will be estab- rency exchange transaction, and any taxpayer estab- lished by Royal Decree. And to prevent international lished in Belgium is jointly and severally liable for double taxation, a currency exchange transaction the payment of the tax due by its contract party. If a will be exempt in Belgium if it is effectively taxed taxpayer uses the services of a financial intermedi- abroad under a regulation similar to the Belgian cur- ary, the tax is payable by the financial intermediary. rency exchange tax regarding the basis, tax rate, the taxpayer, and the location of the taxable transaction. In any event, the Belgian taxpayer that is liable However, the exemption is limited to 50 percent if for payment of the tax due by its contract party, and one of the parties to the transaction is established in the financial intermediary, are authorized to with- Belgium. If both parties are located in Belgium, the hold the tax or a counter value for the tax. exemption will be denied. Exemptions If the currency exchange transaction is localized Individuals’ currency exchange transactions that in Belgium, the currency exchange will be subject to do not exceed €10,000 per year,7 and those by central tax in Belgium, and the proceeds of the tax will be banks and assimilated international institutions that are acknowledged by Royal Decree, are exempt from the tax. 6For purposes of this provision, the European Economic and Monetary Union, is considered to be a single country, as is any 7That is the limit under anti-money-laundering legislation other territory with a single currency. (Law of January 11, 1993). 728 • November 29, 2004 Tax Notes International News Procedural Aspects Hungary Offers Generous The government can establish a simplified regime for taxpayers for whom the application of the Corporate Tax Breaks normal regime would create problems. The simpli- fied regime would take the form of a lump sum tax by Attila Kövesdy payable by the financial institutions, which would free those institutions from the obligation to pay the tax at the level of the wholesale trade of currencies. Hungarian tax law changes passed by the Parlia- Specific measures to ensure the collection of the tax ment on November 8 have been published. For corpo- can be established by Royal Decree. In particular, the rate taxpayers, the most significant changes will king can determine conditions and impose any obliga- strengthen Hungary’s status as a location of choice tions necessary for the correct and simple collection of for European operations, particularly when com- the tax, and to prevent fraud, tax evasion, and abuses. bined with the prospect of treaty negotiations with The government also can sign agreements with the the United States resuming in the first half of 2005. central bank, which controls the legal means of pay- ment in Belgium, including measures regulating the application of the currency exchange tax. Tax Law Changes for 2005 Moreover, by Royal Decree, chartered accountants Aside from its transfer pricing provisions, the can be required to report specifically on the applica- new law eliminates all withholding taxes; eases the tion of the law, and Belgium-based chartered accoun- definition of domestic taxpayer so more companies tants who are part of an international group of audi- can benefit from the domestic corporate tax rate; tors can be required to obtain information about the provides guidance on the European company application of the law from their colleagues.