Plan for EU financial tax found to be illegal

Legal advisers have cautioned 11 EU Governments that a proposal they are considering for a tax on financial transactions is illegal.

The legal service that advises EU member states found that the suggested approach on which companies should be taxed is “discriminatory,” will probably distort competition, violates EU law and “exceeds member states’ jurisdiction for taxation,” according to a copy of the opinion seen by DPA on Tuesday.

The findings were rejected by the European Commission, which drafted the proposal for the financial transaction tax as the bloc’s executive.

“The commission carried out a very thorough legal analysis before presenting this proposal,” spokeswoman Emer Traynor said.

“We stand firm that the proposed FTT is legally sound and fully in line with the EU treaties and international tax law.” There was no unanimous support for the tax in the EU. The 11 countries that decided to proceed on their own are the Eurozone’s four biggest economies — France, Germany, Italy and Spain — as well as Austria, Belgium, Estonia, Greece, Portugal, Slovakia and Slovenia.

Supporters of the measure — also known as the Tobin tax after the US economist who conceived it in the 1970s — argue that the financial sector should pay its fair share after helping cause the economic crisis, and that the tax would make it act more responsibly.

But critics worry that it could drive away investment from Europe.

Britain is among the staunchest opponents of the levy and has turned to the EU’s top court for help, challenging the so-called enhanced cooperation mechanism that allowed the 11 countries to proceed.

The legal service advising EU governments did not look at that mechanism, studying instead a provision that would allow companies to be taxed even if they are not located in the participating countries.

Under the proposal, the deciding factor would be where the financial transaction takes place. Supporters of the tax have pointed to the measure as a way to help keep in check investment relocations.

But the legal service thinks it “exceeds the union’s legislative jurisdiction, starting from the basic predicament that entities must be subject to the laws of the country where they are located.”

The service also took issue with the fact that there is no provision for companies in non-participating countries to avoid double taxation, and that financial markets in those nations would inevitably “be burdened with the tax.” The opinion will be taken into consideration by an FTT working group, EU officials said.

Traynor called on member states not only to consider the legal service’s views, “but to assess them critically against the commission’s robust legal analysis.” “This opinion is one of many which have been fed into the discussions,” she argued. “It certainly doesn’t imply any necessary slowdown in the work being done to progress the FTT.”

COMMENT NOW