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* Investors, insurers say tax will hit savers
* Lawyer warns of double, multiple taxation
* Austria's Fekter welcomes plan to boost coffers
By Huw Jones
LONDON, Feb 14 (Reuters) - The European Union's executive formally proposed on Thursday a tax on financial trading in 11 countries to raise up to 35 billion euros annually, a step investors said would hit savers and pension pots.
The European Commission set out how its financial transaction tax (FTT), aimed at making banks pay for taxpayer help they received in the financial crisis, would apply from next January, the rate at which it would be set, and safeguards to stop avoidance.
Critics said the tax would cut trading volumes, reduce the pensions of future retirees and could lead to double taxation on some transactions.
The plan was requested by 11 countries representing two-thirds of EU economic output that have already agreed to voluntarily press ahead with the tax after the bloc's 16 other members refused to back an earlier, pan-EU proposal.
Attempts to introduce a global "Tobin Tax", named after the U.S. economist who devised a tax on transactions in the 1970s, have also foundered due to U.S. opposition.
EU Tax Commissioner Algirdas Semeta said the bloc's financial sector was "under-taxed" to the tune of 18 billion euros ($24 billion).
"It lays the final paving stone on the road towards a common FTT in the EU," he said in a speech to present his plan.
The Commission said 85 percent of the targeted transactions, which will not include foreign exchange trading, take place between financial firms, but if some costs were passed on to consumers, this would not be "disproportionate".
"Any citizen buying, for example, 10,000 euros in shares would only pay a 10 euro tax on the transaction," it said.
How to stop banks passing on their costs to professional and retail customers is a much tougher question to address.
Member states will haggle over the plan, with changes likely before it takes effect. Only the 11 countries have a vote and their agreement must be unanimous for the plan to take effect.
The tax would be set at 0.01 percent for derivatives and 0.1 percent for stocks and bonds.
Austria's finance minister Maria Fekter backed the plan, saying she expected the levy to raise "at least" 500 million euros a year for her country's coffers.
Pension funds will come under the tax's scope, but the cost will be "extremely limited" if their turnover in shares is low, Semeta said.
But Jorge Morley-Smith, head of tax at Britain's Investment Management Association, said the plan was a tax on pensions and savers.
"Potentially, the impact could be devastating in reducing activity ... and could erode up to six out of every 30 years' worth of contributions to an actively managed retirement savings plan," Morley-Smith said.
Stock lending could also become uneconomical because the average fee is less than the planned tax on it, he added.
Insurance Europe, which represents the bulk of the bloc's insurance sector, said the tax would harm savings products at a time when people should be encouraged to save for retirement.
Many of the plan's basic elements follow the discarded pan-EU proposal, but the anti-avoidance safeguards have been beefed up and new exemptions added.
The new "issuance principle" means a transaction will be taxed whenever and wherever it takes place, if it involves a financial instrument issued in one of the 11 countries.
This is aimed at stopping trades moving out of the so-called FTT zone to London or elsewhere and reinforces an earlier "residence principle" that says if a party to the transaction is based in the FTT area, or acting on behalf of a party based there, then the transaction will be taxed regardless of where it takes place.
The Commission says the combination will remove incentives to relocate trading, though not everyone is convinced.
A tax in just 11 countries could lead to double or multiple taxation elsewhere, said Ben Jones of Eversheds law firm.
The London Stock Exchange, which trades shares from many of the FTT countries, already imposes a stamp duty.
Semeta told a news conference the tax complied with international tax laws and he could take action to deal with double taxation if the issue arose.
A European Commission analysis said it "will not be possible to avoid all incidents of double taxation within the entire EU27". The anti-avoidance provisions, while still being "very powerful" will also be a "little bit less effective" than if the tax was levied across the bloc, it added.
Banks are already looking at ways to avoid the tax.
"The financial services industry is now mobilising very quickly to think about strategic solutions to the FTT following the adoption of the decision to go ahead," said Mark Persoff, a financial services tax partner at Ernst & Young consultancy.
The safeguards may prove controversial for Britain, Europe's biggest financial trading centre, but it will not be able to stop the plan and will have no vote to amend it.
The UK has already introduced a balance sheet levy on banks.
Chas Roy-Chowdhury, head of taxation at the ACCA, an independent accounting body in London, said banks and brokers will take no chances and create a "firewall" by offering products that cannot be "tainted" by the tax.