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The opinion is not binding and Germany which backs the tax aimed at making banks pay governments about €35 billion 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 since it is already fiercely opposed by several EU members including Britain, the bloc's largest financial centre.
The legal services for EU Member States said in their opinion dated September 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.
But EU Tax Commissioner Algirdas Semeta, who drafted the plan, strongly disagrees with the opinion, his spokeswoman said. "We stand firm that the proposed FTT is legally sound and fully in line with the EU treaties and international tax law", the spokeswoman added.
In further reporting, Spiegel Online says that despite the concerns, the Federal Government is still committed to the financial transaction tax. "The Federal Government is behind an early introduction of the FTT, with good reason", said a spokeswoman for the Ministry of Finance said in Berlin on Tuesday. "That has not changed", she added. "The legal concerns must now be addressed and resolved as quickly as possible", she said.
Commenting on the legal opinion prepared for the European council on the financial transaction tax, Joanne Segars, Chief Executive of the National Association of Pension Funds (NAPF), said: “This legal opinion is highly embarrassing for the EC and we hope it will sound the death knell for the financial transaction tax. The FTT would hurt savers not bankers and would hike costs for many employers struggling with a weak economy while trying to provide a good pension. It would increase the cost of investments, which means lower pensions or higher contributions. That is why the NAPF has long argued that the FTT is not the way to encourage long-term responsible investment.”
Press release, 11.9.13
In response to yesterday’s finding, Mark Boleat, Policy Chairman at the City of London Corporation, commented:
“As I have previously said, the FTT is an ill-conceived idea that risks significantly damaging economic prospects across Europe. Not only would it adversely affect the cost of sovereign debt but it would also make it more difficult for businesses across the continent to access funding. In reality, the FTT is likely to have a negative effect on end-users such as pension funds, while generating less revenue than estimated due to the behavioural change that would result. In April, we released research that showed that the FTT would increase the cost of capital by almost £4 billion on issuing UK government debt, despite Britain not being amongst the 11 EU Member States signing up to the proposed directive. I hope that this decision encourages policymakers in favour of the proposal to reconsider the FTT, and to remember the negative impact it would have on investment, job creation and growth.”
Press release, 11.9.13