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Tax on European Stocks Will Raise $45 Billion Annually

In an effort to offset bailout payments, 11 European countries, including Germany and France, have enacted a new tax set to take effect next year on the sale of stocks, bonds and other investment products of European countries.

The so-called “Financial Transaction Tax” is estimated to raise $45 billion annually. It will levy a 10 BP tax on the sale and purchase of stocks and bonds and 1 BP for derivatives, repurchase agreements and other financial products. Consumer products like insurance policies will be exempt, as will IPOs.

The United States and Great Britain are not expected to adopt the tax. However, the law requires foreign financial institutions to report holdings of clients to the IRS and withhold taxes.

The big question is whether investors will look elsewhere to invest. Starting next year, investments in European companies will become incrementally more expensive, which may move even more money into emerging markets.

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