Out-Law News | 25 Apr 2014 | 4:01 pm | 2 min. read
The Financial Times said that the EU's highest court had "unexpectedly accelerated" the challenge to the proposed new tax, which would apply to transactions involving financial instruments issued in a participating member state or where at least one party is established in a participating member state. The UK has argued that the plans do not respect the rights of non-participating countries, as it will apply to UK firms trading with businesses based in a participating state.
"Given the primary problem with the FTT as drafted – that it will affect transactions occurring outside the 11 member states that might implement it – the City will be desperately hoping that the EU court rules in favour of sanity and strikes down the proposals which, if implemented in their current proposed form, can be expected to have a broad impact on the London markets to the benefit of their competitors in New York and Singapore," said tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law.com.
"However, cynical readers will be wondering if this would not be the first time that political expediency has overthrown the rule of law - or commonsense for that matter - and personally, I wouldn't want to call the result ahead of next week: it could go either way," she said.
The Financial Times has reported that the CJEU had chosen to miss out two steps in the legal process in order to deliver its judgment about one year before most observers were expecting. Think tank Open Europe has claimed that this means that there is now an 80-90% chance that the CJEU will rule against the UK, either in the form of an outright ruling or on the grounds that the challenge had been raised prematurely, the FT said.
The European Commission announced its plans for an EU-wide FTT in 2011, but had to abandon them after there was insufficient support for the proposals. However, under the 'enhanced cooperation' procedure, a minimum of nine member states were able to take their own plans for an FTT forward and 11 countries now plan to do so. They are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
The UK government has opposed the introduction of an EU FTT from the start of the process, on the basis that any such tax would have to be global to stop traders simply routing their deals to financial centres outside of the EU. The FTT will apply where financial instruments such as shares, bonds, securities and derivates are traded between banks where at least one party is established in a participating member state regardless of where the transaction itself takes place (the 'residence' principle); or where that financial instrument is issued in a participating member state (the 'issuance' principle).
In a statement, the UK Treasury said that it was "confident" that it would "be able to get an outcome which would protect the single market and non-participating member states".