EU institutions in legal spat over financial transaction tax

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Lawyers for the European Commission and EU member states have become embroiled in a public disagreement over the legality of the financial transaction tax.

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.

UK complaint

“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.

Positions

The European United Left-Nordic Green Left (GUE-NGL) MEP Marisa Matias reacted to the legal discussion on the transaction tax in a statement, saying that "the reference to the 'non liability' of making the financial sector contribute to the costs of the crisis is a rather cynical and shockingly clear message throughout the entire document. If governments want to be accountable to citizens, they simply can’t take this opinion into account." 

"Either we rescue politics and our society from financial markets or we can start to say goodbye to a common European project," she said.

Conservative MEPs welcomed the legal opinion handed to the European Court of Justice which, as they underlined in a statement, deems that a key clause in a piece of EU finance regulation is illegal and should be annulled.

Syed Kamall, Tory spokesman on economic and monetary affairs in the European Parliament, said the legislation aimed at controlling so-called short-selling was potentially damaging to Britain and had been too rushed and too sweeping to work fairly. "The Commission must learn not to make up regulation as it goes along, without a clear legal basis. [...] This is the second major legal setback in a couple of days for the Commission and Parliament," he said.

 

Kamall added that "[Commission and Parliament] should realise that key legislation like this, which impacts upon important parts of the financial services sector, are far better dealt with at national level rather than in Brussels".

 

Timeline

  • Sept.-Dec.: 2013: Directive will continue to be discussed by member states, with a view to its implementation under the 'enhanced cooperation' procedure. All 28 may participate in the discussions on this proposal. However, only the 11 participating states will have a vote, and they must agree unanimously before it can be implemented.
  • 1 Jan. 2014: FTT due to come into force within those countries joining in the enhanced co-operation procedure.

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