In a leaked legal opinion dated 6 September, the legal service of the EU Council, which represents the EU's 28 member countries, made clear that it deemed the FTT incompatible with EU law and that it was likely to distort competition within the bloc.
The FTT, also known as the Tobin tax, is set to be adopted by 11 EU states (Germany, France, Italy, Spain, Belgium, Austria, Portugal, Greece, Slovenia, Slovakia and Estonia). Legal proposals to launch the tax were tabled by the European Commission two years ago under the so-called “enhanced cooperation” procedure, which allows a small vanguard of at least nine EU countries to move forward on matters of common interest.
But the proposed enhanced co-operation "exceeds member states' jurisdiction for taxation under the norms of international customary law", the Council's lawyers said. The plan is not compatible with the EU treaty "as it infringes upon the taxing competences of non-participating member states,” they argued, adding that the proposal was "discriminatory and likely to lead to distortion of competition to the detriment of non-participating member states.”
Commission hits back
The Council legal service’s opinion is legally non-binding, but it casts doubt over the Commission’s proposed “residency principle”, which proposes to tax financial institutions depending on where their headquarters are based, rather than where financial trades are executed.
In response to the leaked Council document, the European Commission issued a robust defence of its position.
“We strongly disagree with the Council lawyers' opinion on the FTT (which incidentally only questions one part of the residence principle, and not the tax as a whole, or the procedure of enhanced cooperation),” said a spokeswoman for Algirdas Šemeta, the EU commissioner responsible for taxation.
The spokeswoman said that the Commission carried out “a very thorough” legal analysis before presenting the proposal.
“We stand firm that the proposed FTT is legally sound and fully in line with the EU Treaties and international tax law. It does not pose the risk of discrimination against any Member State – whether inside the FTT-zone or not,” she concluded.
She insisted that the Council’s lawyers’ opinion would not slow down progress on the FTT.
The UK lodged a formal complaint on the FTT before the European Court of Justice in Luxembourg earlier this year (19 April).
The complaint was against an attempt in the proposal to stop trades moving out of the so-called FTT zone to London or elsewhere if a party to the transaction was based in the FTT area, or acting on behalf of a party based there, thus ensuring the transaction would be taxed regardless of where it takes place.