EU lawyers say transaction tax plan is illegal

EU lawyers say transaction tax plan is illegal

LONDON - 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 findings are not binding but will make it harder to introduce a measure backed by Germany and others to make banks pay governments about 35 billion euros a year after receiving taxpayer aid during the 2007-09 financial crisis.

The 14-page legal opinion will be put to EU finance ministers who must decide whether to scrap the idea or chose a simpler levy such as the stamp duty Britain imposes on shares.

Britain, the EU's biggest financial centre, and several other states, have opposed the transaction tax proposal. They refused to sign up to the plan, 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 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.

"I think a lot of jurisdictions have cold feet already and this is going to open themselves up to legal action by businesses and other governments," said Chas Roy-Chowdhury, head of taxation at the ACCA, an independent accounting body in London.

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