European finance ministers are set for a spat today over the extent to which the financial transactions tax (FTT) – strongly backed by France and Germany – should be pushed on the EU agenda.
The move comes as the two countries push to find common cause on taxation, seeking path-finding proposals for harmonising their corporate tax bases, VAT and fiscal levels.
The FTT is not on the formal agenda of today’s EU finance ministers meeting, but France was to set out proposals on the issue at an informal breakfast beforehand.
The French will also ask the Danish presidency to give the issue accelerated priority during its EU tenure, and will be supported by Germany, whose Chancellor, Angela Merkel, and finance minister Wolfgang Schäuble strongly support the tax.
The UK also wants the issue discussed among finance ministers, but in order to put it to a vote and have it thrown off the ministerial agenda altogether, which would compel countries supporting introduction of the tax to use the enhanced co-operation procedure.
The UK is confident Ireland will support London, which strongly opposes the tax, and Sweden. Swedish Prime Minister Fredrik Reinfeldt has vocally opposed an FTT in the past.
Reinfeldt attended an informal dinner with Merkel and the Austrian and Portuguese prime ministers in Berlin on 19 January at which the FTT was discussed, but it is unclear if the event changed his stance.
Barnier encourages City to play the game
London is comfortable with the introduction of the tax by enhanced co-operation, believing that remaining open to untaxed transactions will give it a competitive edge over EU countries which decide to impose the tax on themselves.
Michel Barnier, the EU commissioner for the single market, yesterday encouraged Cameron and the City of London to “play the European game” and give up seeking UK exemptions that would hurt the economy and endanger open trade.
“Please look around you at how public opinion is reacting and reflect how the single market needs shoring up,” the French commissioner told an audience in London's financial district.
“It is very important that we send a signal with this modest financial transaction tax proposal,” Barnier added.
The UK and the Commission are also currently locked in a war of words over the tax, following an interview given by Taxation Commissioner Algirdas Šemeta in which he warned last weekend that the City of London would not avoid paying the tax, even if the UK opted out.
UK affected by tax, even with opt out?
“The UK would lose a lot if other members decide to move ahead with a financial transactions tax,” Šemeta said, saying that the design of the tax would mean that City institutions would remain liable to pay, but that the UK would not receive the levies.
The statement was dismissed by UK officials, who said that the imposition of extra-jurisdictional tax was illegal under the EU treaties.
The finance ministers meeting today is, however, expected to give the green light to Commission proposals for a regulation on over-the-counter derivatives, so-called “EMIR”.
French Finance Minister François Baroin and Schäuble met in Paris yesterday for a regular meeting between ministers of the two countries. They discussed proposals to harmonise the nations' taxes.
The EU finance ministers meeting takes place against continued sour relations between Britain and France, exacerbated by a letter leaked to yesterday’s Financial Times indicating that Germany and France want a relaxation of new banking capital rules currently under discussion.
The UK opposes the dilution of the Basel III capital requirements rules, claiming France and Germany’s desire to do so is reckless, and that its own position is to implement tougher rules.
The French are scornful of the UK’s suggestion that its own rules will be tougher. “By whose standards?” asked one EU diplomat.