Asset managers warn European Tobin tax will damage industry

Leading UK asset managers have warned against the implementation of a new tax, which could be imposed Europe-wide on all financial transactions.

Investment houses including Aviva Investors and Martin Currie said proposals from the European Commission to raise additional funds via a further tax on the investment industry will hammer returns, and risk turning investors away from European domiciled investments.

Jeremy Soutter, global head of products at Aviva Investors, said the proposed tax had the potential to “massively eat into returns in an environment when you are only getting between 3% and 5% per annum”.

“This is not a tax on banks it is a tax on individuals – retail investors and everyone with a pension will be penalised,” he said.

The transaction tax would be imposed on EU members, and aim to raise €57bn (£50bn) per year after proposed implementation in 2014.

Charges are likely to be around 10bps for equity transactions, 2bps for bonds, and 1bp for derivatives trades.

Soutter said the derivatives tax could harm investment processes on a number
of funds.

“Managers in the retail space use derivatives all the time to reduce volatility – this tax will kill some of them and damage the rest of the sector,” he said.

Toby Hogbin, head of product development at Martin Currie, added: “They will be taxed at every point in the chain – subscriptions, investment and divestment. We run the risk of tax starting to wag the tail of the investment dog where investment decisions are driven by tax rather than needs.

The UK Treasury is now poised for a showdown with officials in Europe. It said it will “absolutely resist” the proposals unless the tax is implemented on a global scale.

European competitiveness would also be impacted at a time when growth is vital, with the Treasury understood to have forecast internally that the tax could reduce European GDP by between 0.17% and 1.76%.

Soutter added: “We know the Treasury is going to fight this as, if it goes ahead, there will be a flight to places like the US.

“Unless everyone agrees to it, it will completely damage the European industry.”
The IMA said UCITS investors could be hit hardest.

Julie Patterson, director at the IMA said: “UCITS investors could be hit three times, as they may also be taxed when they buy units in the fund.”