Brussels, 10/09/2013 (Agence Europe) - A report by the EU Council of Ministers' legal department on 6 September, seen by this newsletter, says that the draft directive to introduce a financial transactions tax (FTT) in eleven countries of the EU by means of enhanced cooperation goes beyond the member states' powers in the field of taxation under international law, is incompatible with the EU treaty because it infringes the fiscal powers of non-participating countries and is liable to distort competition to the detriment of non-participating countries (see EUROPE 10785).
The Council of Ministers' legal experts say that the levying of tax by a participating country on transactions carried out with financial institutions located outside the EU or with non-participating member states considered as registered in one of the eleven countries as a counterparty (under Article 4 of the draft legislation) would have extra-territorial effects because it would involve the exercise of fiscal power in bodies located outside the geographical area covered by the legislation.
The experts say the counterparty principle would be applied in a discriminatory manner and distort competition because participating countries would tax their own financial institutions for transactions carried out anywhere in the world, and financial institutions registered in non-participating member states or outside the EU when it comes to transactions they carry out with a counterparty located in the participating countries, but would not tax financial institutions registered in another participating member state for transactions carried out with a counterparty registered in their own country. Hence for identical transactions in terms of location, those carried out by non-resident financial institutions would be treated differently depending on whether the institution is located in a country that levies the FTT or one that doesn't.
“We strongly disagree with the Council Legal Service's opinion on the FTT (which incidentally only questions one part of the residence principle, and not the tax as a whole, or the procedure of enhanced cooperation)”, said a spokesman for Taxation Commissioner Algirdas Semeta, adding: “The Commission carried out a very thorough legal analysis before presenting this proposal. 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. In any case, this opinion is one of many that have been fed into the discussions around this proposal - it certainly doesn't imply any necessary slow-down in the work being done to progress the FTT. We expect the member states not just to take on the CLS' views, but to assess them critically against the Commission's robust legal analysis of this proposal”.
The view of the Council of Ministers' lawyers may delay introduction of a tax already challenged by a number of lobby groups and may provide further arguments for countries like the United Kingdom, which say that even, if only introduced by eleven countries, the FTT would damage the competitiveness of European stock exchanges. (FG/transl.fl)