Agents of Change: EU Tax Commissioner Insists that Discussions Concerning the Proposed Financial Transaction Tax Will Continue Despite Concerns Over Legality
Coming on the heels of the uproar caused by an opinion of the Legal Service of the Council of the European Union (the CLS Opinion) that raised doubts as to the legality of the proposed financial transaction tax (FTT) (for background on the CLS Opinion, click here), EU Tax Commissioner Algirdas Semeta insisted that negotiations to finalize the terms of the FTT will continue.
Speaking September 14 at the conclusion of a meeting of EU finance ministers in Vilnius, Lithuania, Commissioner Semeta asserted that there was no cause for delaying the negotiations. According to reports, he explained that the European Commission (EC) is “absolutely confident” in the legality of the proposed FTT and rejects any claims that it goes against the Treaty on the Functioning of the European Union.
Commissioner Semeta emphasized that the CLS Opinion concerned only one paragraph of the residence principle in the proposed FTT directive. The residence principle is a crucial element of the EC proposal that is designed to prevent financial traders from moving from one of the 11 EU member states that will adopt the measure—if and when it is finalized—to another EU member state that will not adopt the FTT. For example, as proposed, the FTT would be assessed on a trade made in the U.K. even though the U.K. will not adopt the measure, if the trade involves a party that is based in an EU member state that does adopt the FTT.
The controversy over the legality of the residence principle has been viewed by many as the latest—and perhaps most foreboding—setback for the proposed FTT. On April 18, the U.K. government brought a legal challenge against the proposed FTT in the European Court of Justice, questioning the extraterritorial element of the tax and whether the 11 countries can use the EU’s enhanced cooperation procedure in order to implement the proposal. The enhanced cooperation procedure was selected for the proposed FTT in order to avoid the unanimity rule that otherwise applies to all EU tax legislation. That matter remains pending before the European Court of Justice.