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Eversheds comment: China risks significant and unexpected knock-on effects from Tobin tax

  • United Kingdom
  • China

    15-03-2016

    Commenting on news that China is considering implementing a 'Tobin Tax' to control its currency market, Ben Jones, partner and tax expert at law firm Eversheds, says:

    “Tobin taxes have had a chequered past, with powerful examples of unintended market disruption and genuine concerns about how a Tobin tax can be effectively operated in a global economy. Sweden’s experiment with a Tobin tax in the 1980s ended disastrously, with significant trading activity moving from Sweden to other markets. More recently, the attempts by the EU to introduce an EU-wide Tobin tax have floundered, a key problem being the design of an effective system that discourages migration from the market while avoiding extra-territorial taxation.

    "Currency trading in China represents a different, more focused target than other Tobin taxes and it may be that such a tax will have the desired effect of dampening yuan speculation. However, history has shown that the knock-on effects of such a tax can be significant and unexpected, and the legal and administrative framework of such taxes are often complex and burdensome. Ultimately, both outcomes are likely to create a more challenging business environment.”

     

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