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Market welcomes major legal blow to FTT

First Published 11th September 2013

An EU legal opinion that challenged the basis for a cross-border transaction tax has been welcomed by the market.

Financial market participants, not surprisingly, have welcomed a major blow to the proposed European financial transaction tax (FTT).

The EU's legal service issued a report that deems the proposed tax illegal. The report is not binding, but it makes the imposition of such a tax much more unlikely.

A text of the report concluded that the proposed tax "exceeds Member States' jurisdiction for taxation under the norms of international customary law as they are understood by the Union".

It also held that the FTT "infringes upon the taxing compentences of non participating Member States". And finally, the report argued the tax was "discriminatory and likely to lead to distortion of competition to the determinent of non participating Member States".

The Investment Company Institute, which represents investment groups in the United States, had already objected to the proposed tax and issued a statement welcoming the latest development.

"We welcome today's well-reasoned opinion of the European Union Council's Legal Service that the proposed Financial Transaction Tax violates several principles of European law," said Keith Lawson, ICI Global Senior Counsel, Taxation.

"Specifically, this opinion supports our long-held view that the proposal would have extraordinary extraterritorial impact."

ICI said it would "continue to engage closely with policymakers regarding the many negative effects that a financial transaction tax would have on individual fund investors, pension funds, issuers, and the markets".

Open Europe, a think tank focused on EU affairs, wrote that the legal decision presented a major obstacle to the tax going ahead. "Given the clarity and depth of the arguments presented it is hard not to see this as the final nail in the coffin for this (much maligned) proposal for the FTT," the think tank wrote in a blog.

Meanwhile, Reuters reported that Germany still wants to push ahead with a tax despite the legal issue.

The news service quoted a German finance ministry statement as saying: "The German government advocates a swift introduction of the FTT for good reasons. We want to make the financial sector contribute adequately to the costs of the financial crisis."

"Nothing has changed on that. The legal concerns must be cleared up and dispelled as quickly as possible."