Search News & Insights
The legality of the financial transactions tax
The recent legal opinion issued by the European Commission’s legal service has struck a substantial – albeit probably not fatal – blow to the Commission’s push to implement a financial transactions tax (“FTT”). Commentators were struck by the strength of the opinion, published in the media on 6 September 2013, which raises serious questions as to the legality of the tax under European law.
Discriminatory FTT contravenes customary international law
The primary claims of the legal service’s opinion are that the FTT exceeds national jurisdiction, infringes EU treaties (as it does not respect customary international law) and that it is discriminatory to member states that have chosen not to engage in the enhanced cooperation procedure.
A spokesperson for Algirdas Semeta, the EU Tax Commissioner, has subsequently gone on record as stating "...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." This is a somewhat odd response; presumably, the opinion of the legal service must have some bearing in the European Commission’s assessment of the legality of the tax. It will certainly be of interest to the United Kingdom in its legal challenge to the implementation of the FTT under the enhanced cooperation procedure.
The legal opinion is likely to force a rethink of the form of the FTT by the European Commission. In order to alleviate the primary legal concerns raised by the legal service, the deemed establishment provision under the draft legislation will have to be significantly scaled back, if not removed entirely. This was the primary anti-avoidance pillar of the draft legislation, designed to ensure that the FTT gained a foothold even in non-participating states. Its removal would greatly reduce the scope and efficacy of the FTT, and would ensure a territorial application of the FTT within the E-11 member states.
The strength with which the legal opinion was issued is a great cause for concern among the E-11, who will see the FTT as likely to attract legal challenge, after its passage into law. While the Commission regroups, the timetable for the FTT’s implementation (which is already slipping at speed) has, as we saw in the case of the EU Savings Directive (“EUSD”), the potential to drag on for years to come. This is likely to happen through both further informal delays, and official delays (or “timetable revisions”), as occurred with the EUSD.
Despite the fact that the legal service’s opinion is a hammer-blow to the Commission’s legislative agenda, the FTT may not simply disappear, given the huge levels of political capital already expended on it. It is likely that the FTT negotiations will rumble on, and some form of agreed text may emerge. However, two things seem clear: any agreed text which now emerges will be radically more muted than the original Commission plan, and the finishing line for the FTT’s race is not even in sight.