The Financial Transaction Tax (FTT) could curtail the distribution of Ucits outside Europe and significantly reduce the assets of European funds, the Association of the Luxembourg Fund Industry (Alfi) warned.
Financial institutions will try to reduce the impact of the tax – which is designed to raise revenue and curb speculation on securities - with a wide scale relocation of trading activities and/or the passing on of the costs to end-consumers, including individual savers and those participating in pension plans.
The impact on the funds industry would be significant, Alfi says, not just because the proposed headline rates are high, but also because the proposal gives rise to multiple taxation at the level of the fund, its portfolio and its investors.
Supporters say the tax would benefit economies, but Marc Saluzzi, chairman of Alfi, says this is doubtful.
“The benefit to the economy or to society is doubtful if it requires people to save a larger part of their earnings, retire at a later age and receive a significantly reduced pension in retirement for absolutely no tangible fiscal uplift.”
Saluzzi made the comments yesterday when Alfi put out its annual review. The review showed that the Luxembourg funds industry had continued to expand over the last 12 months despite the eurozone crisis and declines in major stock indices.
The number of funds in Luxembourg rose by 4.84% to 3,833 and net sales amounted to €16.998bn. While total assets under management decreased over the period by €101.453bn, mainly as a result of market depreciation, total assets under management were still a steady €2,059.419bn, second globally only to the US.
The increase in net sales and funds enabled the Luxembourg fund industry to continue to maintain and create employment in 2011. The Luxembourg financial centre has over 43,000 employees working directly for Luxembourg financial sector companies and many more working for non-financial companies that provide goods and services to the financial centre.
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