Out-Law News 2 min. read
22 Apr 2013, 4:06 pm
The European Commission published details of the FTT, which will introduce a tax on financial transactions between participating countries, in February. The UK Treasury has said that if introduced as planned, the tax will apply to UK firms trading with businesses based in one of those states.
In a statement, the Treasury said that it was "not against the principle" of a global FTT, however it would not participate in a tax which applied only to countries in the EU.
"While we will not participate in a Europe-only tax, we have also said we will not stand in the way of other countries, but only if the rights of countries not taking part are respected," a Treasury spokesperson said.
"The proposal currently on the table from the European Commission does not meet these requirements, which is why we have lodged the legal challenge," the spokesperson said.
The European Commission dropped plans for an EU-wide FTT in June 2012 after a Council discussion revealed that there was insufficient support for the proposal. However, it is allowing participating states to implement the tax under the 'enhanced cooperation' procedure. This process allows a minimum of nine EU member states to proceed with a plan even if not all EU countries agree with it.
The FTT will apply where financial instruments such as shares, bonds, securities and derivatives are traded between banks where at least one party to the transaction is established in a participating member state regardless of where the transaction itself takes place. The states participating are Belgium, Germany, Estonia, Greece, Spain, France, Italy Austria, Portugal, Slovenia and Slovakia.
Transactions will be taxed at 0.1% for shares and bonds, and 0.01% for derivatives. The tax will not apply to the day-to-day financial activities of citizens and businesses, or to traditional investment banking activities. Activities of member states and other public bodies when managing public debt will also be excluded, as will refinancing and monetary policy actions by the European Central Bank, European Financial Stability Facility and European Stability Mechanism.
The UK has never supported an EU-specific FTT, stating that any tax would have to be applied "globally" to prevent financial traders rerouting their transactions to countries outside of the EU. In a highly critical report on the original proposals, published in March last year, the House of Lords denounced the tax as "flawed" and warned that its adoption by the UK would force banks to relocate from the UK's financial centre in the City of London.
Tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law.com, said that given this background, the UK's legal challenge was "no surprise".
"The UK's objection is of course not against the idea of a tax, and more about preventing an economic strike on the profitability of the City by the 11 EU states planning to participate in the new tax," she said. "And one can see their point: if the tax was to go ahead as planned, it would have a detrimental effect on the big financial institutions based in London when they trade in instruments or with parties established in one of the participating states. It was inevitable that the UK would object."
The proposed tax is still to be finalised by those member states participating in the agreement, which must agree unanimously before the tax can be implemented. The proposal sets out a deadline of 30 September 2013 for participating states to publish new laws, which should take effect from 1 January 2014.