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EU Legal Opinion Says Financial Transaction Tax Illegal


European Union lawyers have warned that a Financial Transaction Tax within parts of the EU would illegally exceed member states' jurisdiction for taxation and create distortions to the detriment of non-participating EU member states.

According to the document from the lawyers, which offers non-binding advice, the tax "infringes upon the taxing competences of non-participating member states," and is therefore incompatible with the EU treaty. Eleven countries hope to create an "FTT Zone" under provisions for "enhanced cooperation" between EU states.

The document echoes concerns that have already been raised by the UK. Prime Minister David Cameron has described the plan as "madness," and in April the House of Lords European Union Committee noted that the tax would apply to UK financial institutions when dealing with countries that have the FTT, and that there was a lack of detail about how the tax would be collected and how it would affect subsidiaries outside the FTT zone. The Committee urged Chancellor George Osborne to take "urgent legal advice" on the issue, and the UK Government subsequently launched a legal challenge in Europe on the deadline for doing so.

The FTT proposal was also recently attacked by the London Chamber of Commerce and Industry as potentially "particularly damaging" for London's financial services industry and for businesses supporting the financial sector, while the British Bankers' Association (BBA) warned that the European Commission had "seriously underestimated the cascading effect" of the tax. The BBA also raised the prospect of "broader threats to monetary policy, financial stability and the wider economic interests of the EU."

In July, however, the UK's Business, Innovation and Skills Committee asked the Government to consider the "viability, benefits and risks" of an FTT on High Frequency Trading. The Committee had heard evidence that the tax would promote long-term investment and stability by removing "unnecessary trading" from the financial system, but that finding a workable structure would be "very difficult."