EUROPE - The European Commission has published a formal proposal for a 'financial transaction tax' in a bid to make the financial sector "pay its fair share".

The tax would come into effect on 1 January 2014, charging 0.1% of all bond and equity trades and 0.01% of all derivatives trades.

It would be levied on all transactions between financial institutions when at least one party is located in the EU. It would also apply to all 27 EU member states.

Tax revenues would be shared between the EU and all member states.

The Commission offered two reasons for the new tax.

The first was to ensure the financial sector made a "fair contribution" at a time of "fiscal consolidation" in the EU.

"The financial sector played a role in the origins of the economic crisis," it said. "Governments and European citizens at large have borne the cost of massive taxpayer-funded bailouts to support the financial sector."

It also argued the financial sector was under-taxed compared with other sectors.

Its second reason for proposing the tax was that a "coordinated framework" would strengthen the EU single market.

"The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU," it said.

"This will help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises."

Algirdas Šemeta, commissioner for taxation, customs, anti-fraud and audit, said the project was "sound and workable".

"I have no doubt this tax can deliver what EU citizens expect - a fair contribution from the financial sector," he said. "I am confident our partners in the G20 will see their interest in following this path."

The Commission pointed out that public debt in all member states had increased from less than 60% of GDP in 2007 to 80% for "the years to come".

It also stressed that member states had committed more than €4.6trn to bail out the financial sector, which has enjoyed low taxes in recent years.

All member states in the EU's Council of Ministers will now discuss the proposal, which the Commission hopes to present at November's G20 Summit in Cannes.