We are writing to seek urgent clarification concerning the possible unintended capture within scope of the Digital Services Tax (DST) of a range of financial markets activities, which would underpin the proper functioning of Europe’s capital markets.

As representatives of Europe’s major financial markets infrastructures and participants, we note that the current scope of the DST proposal incorporates services provided through a “multi-sided digital interface” (Art 3.1b). As currently defined in the context of the DST proposal, such interfaces lie at the core of Europe’s financial markets.

The stated aim of the proposal (in the Recitals to the Proposed Directive and public statements of the Commission) is to respond to a misalignment between the place where the profits of large digital businesses are taxed and the place where value is created. That aim is not served by taxing financial markets, which seems to us a wholly unintended consequence.

While the original proposal recognizes the intent not to capture financial services providers, its legal text only includes a very limited set of exemptions (Recitals 18-21 and Art. 3.4 b & c, 3.5, 3.6) – incorporating MiFID trading venues, systematic internalisers, crowd-funding platforms and data reporting by a trading venue where these are located in the EU.

This falls substantially short of the full range of activities potentially captured and serving Europe’s markets, including but not limited to all trading venues (including spot FX), liquidity providers, data service providers, benchmark administrators, clearing houses and settlement infrastructures as well as those responsible for multilateral systemic risk reduction such as portfolio compression providers, whether or not located in the EU.

We are therefore concerned that the DST would have the effect of imposing a de facto 3% revenue tax on key elements of EU and non-EU infrastructure and service providers serving Europe’s capital markets. That will result in disproportionate double-taxation, disregarding the tax contributions already made by the above-mentioned service providers. It will also affect the international competitiveness of EU participants in trading venues, other financial market infrastructure and service providers.

We would therefore strongly urge that you put the point beyond doubt in the Articles of the legal text by confirming that the full spectrum of activities linked to capital markets are excluded from scope – to ensure an efficient financing of the EU economy while avoiding disproportionate inefficiencies to the detriment of capital markets and their users. The important political objectives of the Capital Markets Union initiative should not be impaired via unintended consequences of the DST.

The international role and competitiveness of Europe’s markets depends on the proper treatment and consideration of this issue and we stand ready to provide any further information necessary to help in this regard.