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ECJ Rejects UK Challenge To EU FTT

by Robert Lee, Tax-News.com, London Monday, May 5, 2014

The Mayor of London has expressed disappointment at the European Court of Justice's decision to reject the UK's legal challenge against a proposed European Union financial transaction tax (FTT).

Reacting to the ruling, issued on April 30, Boris Johnson said: "With London's economy buoyant once more and driving the national recovery, the last thing that we need is a barmy tax that will stamp on growth and potentially drive businesses to financial centers outside the European Union (EU). Finance is a global game and our rivals in the US and Asia will be licking their lips in sheer delight."

The UK launched its legal challenge in April 2013, when it requested that the Court annul a European Council decision authorizing the use by 11 EU member states of the enhanced cooperation procedure to implement a tax on financial transactions, labeled a Tobin tax. At the heart of the UK's argument was that it would have extraterritorial effects and impose costs on non-participating member states.

In a statement explaining its decision in United Kingdom v Council (Case C-209/13), the Court argued that: "The contested decision does no more than authorize the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself. The elements of a future FTT challenged by the United Kingdom are in no way constituent elements of the contested decision."

"Likewise, the contested decision contains no provision on the issue of expenditure linked to the implementation of enhanced cooperation. That issue can therefore not be examined before the introduction of the FTT," the statement added.

The Court concluded that the two arguments put forward by the UK Government are directed at elements of a potential FTT, rather than at the authorization of enhanced cooperation itself. The UK's action was accordingly dismissed.

Financial services experts TheCityUK said that, despite the defeat, the UK had been right to press the issue at an early stage, as the challenge provided an opportunity to highlight the implications for Europe's economy as well as the need to maintain a level playing field for all EU member states.

Chris Cummings, Chief Executive of TheCityUK, commented: "The ECJ's legal judgement focuses on the enhanced cooperation procedure. But what is really at stake here is the right of non-participating member states to promote economic growth in their own markets. The Commission's own impact assessment has shown that the FTT is bad for savers and bad for business."

"It is the exact opposite of the type of intervention that is needed at the moment if the European economy is to grow and if we are to show international markets that Europe is open for business. It risks having a particularly adverse effect on London as Europe's financial center."

Simon Leach, financial services tax partner at PwC, said that: "The opportunity remains for the UK or other EU member states to challenge the final version of the [Commission's] Directive once adopted. Unless significant structural changes are made to the proposed tax, future legal challenges appear likely."

An announcement on the progress of FTT negotiations is expected next week. Leach believes that "there are clear differences of opinion between the 11 member states on the precise scope and details of the tax to be implemented." Significant additional work will be needed before an agreement can be reached, and he expects that a phased implementation of the tax will be the only practical way forward.

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