What next for the EU Financial Transaction Tax?

What next for the EU Financial Transaction Tax?

The Financial Transaction Tax (FTT) will exceed member states’ tax powers, the EU Council Legal Service has concluded in its recent legal opinion. While the opinion is non-binding, the strength of the legal objections is likely to accelerate moves to scale back the design of any common levy. Dan Neidle, partner at Clifford Chance, comments on the implications this could have on the future of the FTT.

 

What’s the issue?

The European Commission’s proposal to introduce a €35bn eurozone levy with global reach would both exceed national jurisdiction and infringe on EU treaties and discriminates against non-participating states, according to the EU Council Legal Service. On the other hand, Algirdas Semeta, EU tax commissioner, stated that the proposal is legally sound and fully complies with EU treaties and international law.

 

In general, why would a legal opinion be sought, as was the case in relation to the FTT?

The meetings of the EU Council FTT Working Group are not open to the press or the public, so one cannot be sure—but it seems a number of member states expressed doubts about whether aspects of the FTT were compatible with EU law, and sought the opinion of the Council Legal Service. These doubts have been gathering ever since the EU FTT was first proposed back in 2011. While the Commission insists the FTT is compliant with EU law, this has never amounted to more than an assertion. So this seems to be the first time member states were provided with legal analysis by an EU institution—which makes the Council Legal Service’s conclusion so incendiary.

 

What were the main points of interest and what does this mean for the proposals relating to the FTT?

The EU FTT has always been based around the ‘residence principle’—the idea that entities established in the ‘FTT zone’ are subject to the FTT on their worldwide

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