Tax on financial transactions illegal, say EU lawyers

A plan to tax financial transactions in 11 European Union member states from 2014 is illegal, the bloc’s lawyers have concluded, dealing what could be a final blow to the measure as proposed.

The opinion is not binding and Germany which backs the tax aimed at making banks pay governments about €35bn a year after receiving taxpayer aid during the 2007-09 financial crisis, said it still wants swift introduction of the levy.

But the conclusions of the 14-page legal opinion will make it harder to push the measure through in its current form, particularly as it is already fiercely opposed by several EU members including Britain, the bloc’s largest financial centre.

EU finance ministers will consider the conclusions and decide whether to scrap the idea, refine the proposal or choose a simpler levy such as the stamp duty Britain imposes on shares.

Germany said the legal concerns must be cleared up. The plan needs the backing of all 11 governments to be put in place.

Britain and 15 other EU member states refused to support the transaction tax proposal raising questions about how it would work with only some members participating.

Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia were planning to adopt the tax on stocks, bonds, derivatives, repurchase agreements and securities lending.

But the legal services for EU member states said in their opinion dated Sept 6 and obtained by Reuters that the transaction tax plan “exceeds member states’ jurisdiction for taxation under the norms of international customary law”.

The plan is also not compatible with the EU treaty “as it infringes upon the taxing competences of non-participating member states”, the document said.

A transaction tax only in some member states would also be “discriminatory and likely to lead to distortion of competition to the detriment of non-participating member states”.

The tax would also be an “obstacle” to the free movement of capital and services within the single market, breaching two tenets of the EU’s founding treaty.

Ben Jones, a tax lawyer at Eversheds, said the opinion could give backers of the tax a political escape route to limit its scope or scrap it altogether.