Treaty on Global Currency Transactions Tax

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SUMMARY MEMORANDUM ON THE CURRENCY EXCHANGE TAX TREATY

SUMMARY MEMORANDUM ON THE CURRENCY EXCHANGE TAX TREATY

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This memorandum summarises, in plain language, the basic ideas of the draft Treaty on Global Currency Transactions Tax. The proposed rules, principles and procedures are represented mostly in the same order as in the draft Treaty itself. Immediately subsequent to this, the preamble of the draft Treaty is on page [...] , followed by the articles and paragraphs of the formal legal text.

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1. Tax Base

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All international forex transactions shall be taxed, including over-the-counter spot and forward transaction and derivatives, at an equal rate. Both the seller and the buyer shall pay the tax, whether at wholesale level (in the inter-dealer markets) or at retail level (banks' customers). Most of the legal framework defining the tax base is based on the EC 6th VAT Directive, which has thus far provided also a model for Central and Eastern European states, Russia China and many other states.

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In the case of substitutes for forex transactions, States shall extend the CTT to cover the substitute. Ultimately, however, the CTTO may opt, if necessary, for an exclusive list of forex-related transactions; and an exclusive system of registered actors.

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States shall refrain from initiating or harbouring tax havens within and outside of financial centres and in the case of potential evasions, agree to close down loopholes and to behave as a regulator for such cases. They will exchange information about all problems to the CTTO in full and seek collective solutions to these problems.

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2. Tax Rates in a Two-Tier System

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The CTT will be applied according to a two-tier system as devised in the Spahn model, to shield currencies from speculative attacks. The CTTO will designate an admissible spread for fluctuation, within which the general low tax rate will be applied. Any trading price exceeding the threshold will automatically trigger an exchange surcharge at a much higher rate.

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The basic tax rate will be fixed at 0.1% [or as will be agreed], which will be applied during normal currency transactions.

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When the effective exchange rate transgresses the agreed band, the exchange rate will trigger a surcharge at a high proportional rate of 80% [or as will be agreed]. The threshold is determined by a crawling peg, based on a moving average of currency in relation to a weighed basket of four most relevant currencies for that country.

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The Two-Tier System, will aim to confiscate windfall gains from over-speculation through the trigger of a higher tax during times of exchange rate turbulence.

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3. Collection of the Basic CTT on a National Basis:

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National taxation authorities will conduct the collection on a national basis in co-operation with central banks and with access to the information of institutions such as the Continuous Link Settlement Bank. CTT is to be payed by the professional intermediaries; if there is no such intermediary (e.g. in a group of companies) than the tax payer will become liable himself.

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A Country will collect the CTT on all transactions by the banks and other financial actors based within that country, independently of where the transactions take place or are settled. This shall include all related companies e.g. based in off-shore tax havens. When they are dealing with actors from outside the CTT zone, they will have to pay the taxes in full. The responsibility to pay the tax shall this lay with the financial actors themselves, independently of how and where the deal is made and the transaction settled.

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The tax will thus be collected on actors whose home countries are not taking part in this Treaty, but who make transactions in dealing sites located within the CTT zone or involving currencies of countries and monetary unions belonging to the CTT zone.

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The CTTO will assist the national authorities to enact changes in the relevant procedures of bookkeeping and rules and principles of forex transactions, including all OTC transactions, to ensure a comprehensive system of tax collection. However, this draft Treaty is also compatible with the idea that the bulk of tax should be collected by using the formal, regulated and centralised net settlement system now in place (Continuous Link Settlement Bank).

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With a view to fulfilling the aims set out in this Treaty, States agree to allow sharing and transparency of information regarding their forex market activities and taxation.

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4. Global Fund and National Freedom of Manoeuvre:

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As develop countries will contribute 80 % and developing countries 30 % to the CTTO, the remaining 20% or 70% of revenue will be reserved for national use. The national governments are free to determine how they want to use their national share.

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CTTO Member governments will thus reserve and develop freedoms of manoeuvre and national autonomy through collection of the tax, through the freedom to use their national share of the revenues and by gaining autonomy in economic policy. They will also gain autonomy through taking part in the democratic decision-making of the CTTO, which will allocate the funds to global common goods.

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A part of the Global Fund (as shall be decided by the Council and the Assembly) will be allocated to the Global Intervention Fund, which may support a currency, which is not traded anymore or is depreciating at an accelerating rate, by buying that currency in sufficient volumes in market prices.

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5. The Structure of the CTTO.

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• Council

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The Council is the main decision making body of the CTTO. The Council, meeting in the composition of the CTTO States will act by majority vote - with voting power from one to three weighed in terms of population - and according to the guidelines put forward in the Treaty. Decisions on matters of substance shall be made by a two-thirds majority of the votes of the Contracting Parties; decisions on other matters shall be made by a simple majority of the votes of the Contracting States present and voting.

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The Council will meet on a regular basis. The Chair may invite an emergency meeting at any time, should exceptional circumstances require drastic actions.

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• The permanent secretariat:

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A CTTO permanent secretariat will be established in the first phase of the CTT implementation. The secretariat will at first be paid by the participating states in accordance with their UN assessment based share in the budget [or as will be agreed].

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Responsibilities shall include:

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a. Planning and co-ordination of the International proceedings and necessary conventions.

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b. Arranging the subsequent meetings of the CTTO.

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c. Managing and keeping accounts of the global fund.

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d. Implementing the decisions of the Council and the Assembly.

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e. Following market developments and state practices of surveillance and taking all relevant developments to the immediate knowledge of the Council and the Assembly.

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f. Conducting studies, in consultation with the states concerned, on alternative ways of organising the economies of developing or small countries such as off-shore tax havens.

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g. Any other task that arises from the implementation of this Treaty.

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The Secretariat is accountable to the Council. Its Bi-Annual Report will have to be approved in Assembly. Failure to do so could e.g. lead to the replacement of the three highest Directors of the Secretariat.

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• The Democratic Assembly

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The Assembly, which has autonomous powers, holds the Council accountable. It is fully empowered to set motions on any topic related to the CTT or the use of global funds. It determines the budget of the CTTO, as prepared by the Council. If accepted by the Assembly, the Council is obliged to make a decision on that issue, as framed by the Assembly.

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The Assembly will be comprised of representatives from governments, democratically elected national parliaments and a sample of civil society actors chosen through a screening procedure and lottery. Each government has one representative. Democratically elected national parliaments get from one to five seats depending on the size of population. Civil society actors will get a number of seats, which equals to three quarters of the combined number of seats of the representatives of governments and national parliaments.

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The Assembly will meet e.g. twice a year, immediately before and at the time of the Council meeting.

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6. Phases of Implementation.

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The Currency Transaction Tax implementation can proceed along a multiple-phased regime.

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The nature of the phases allows for a grouping of states to establish a collective organisation with capabilities for management of the tax and that could take further actions against tax havens and participate likewise in other initiatives.

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• Transitional Phase

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During the transitional phase towards the first phase, the CTTO will be discussed, organised and formulated by a Preparatory Group (of Signatory States).

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• Entry into force

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Any Minister of Government can represent their countries at the first International Conference. They should be accompanied e.g. with parliamentary representatives. The first International Conference will be open to the participation of global civil society representatives.

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This Treaty will enter into force at such time as at least 30 states will have signed and ratified the Treaty and measured by an aggregation of nationally based activities, this grouping of countries will account for at least 20% of global currency markets.

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Nothing in the Treaty will prevent any state from joining the Organisation providing they are in consent to be bound by Treaty Obligations. To the contrary, all states of the world are invited to join.

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• First Phase.

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The activities of the organisation in this first phase will be to accomplish the following activities.

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i. The CTTO will be established with a permanent secretariat, at first paid by the participating states in accordance with their UN shares [or as will be agreed].

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ii. The location of the headquarters of the CTTO will be decided. If no consensus can be reached in a reasonable time, the location will be decided in an appropriate procedure as may be necessary.

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iii. The CTTO will assist the national authorities to set a uniform system of tax collection and payment to the global fund the CTTO will establish a crawling peg system between participating currencies, forming the basis for a two-tier system of forex taxation.

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iv. A global fund will be established within the CTTO, to which the agreed share of tax revenues will be paid by national authorities.

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v. The CTTO will undertake initial monitoring and auditing tasks.

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vi. As of the first phase, the CTTO will be independent of any existing regional or international organisation.

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• Second Phase.

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The Organisation shall move into the Second Phase when countries covering at least 90% of transactions within forex markets are actively applying the CTT, and all major financial centres and most other countries have joined the First Phase system.

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In this phase, the CTTO will examine its identity in deep reflection in order to understand the future of the regime.

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During this phase, States will collectively decide further action for structural design and affiliation. Representative States will consider whether to pursue more intensive partnerships with pre-existing International Organisations such as the United Nations or the World Bank, and whether it will utilise those forums for discussion of appropriations of international revenues. States may decide otherwise whether the Organisation shall seek Stateship of the UN, say, in the form of, or with the governance of, a would-be Economic Security Council, as proposed by the Commission of Global Governance.

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Disputes

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Any dispute between two or more Contracting States relating to the interpretation or application of this Treaty which is not settled through negotiations within three months of their commencement shall be referred to the Council. The Council may itself seek to settle the dispute or may take recommendations on further means of settlement of the dispute, including referral to the Democratic Assembly or to the International Court of Justice in conformity with the Statute of that Court.

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Amendments

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After the expiry of seven years from the entry into force of this Treaty, any Contracting State may propose amendments thereto. No sooner than three months from the date of notification, the Democratic Assembly, at its next meeting, shall, by a majority of those presents and voting, decide whether to take up the proposal. The Democratic Assembly may deal with the proposal directly or convene a Review Conference if the issue involved so warrants. The adoption of an amendment at a meeting of the Democratic Assembly or at a Review Conference on which consensus cannot be reached shall require a two-third majority of Contracting States.

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Withdrawal

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A Contracting State may, by written notification addressed to the Secretary-General of the United Nations, withdraw from this Treaty. The withdrawal shall take effect two years after the date of receipt of the notification, unless the notification specifies a later date.

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