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April 30, 2014 10:06 am
Britain has suffered an early defeat in its legal campaign to rein in eurozone plans for a so-called “Robin Hood tax” on financial transactions.
A eurozone vanguard, including France, Germany, Italy and Spain, wants to press ahead with a levy on financial trades – a tax the UK vetoed at EU level and fears would still hurt London if implemented within the euro area.
European judges in Luxembourg dismissed the UK’s first attempt to block the tax, saying that UK pleas were “directed at the elements of a future tax” which has yet to be agreed.
At this stage, the court said, it is only able to review the decision to authorise those eurozone countries to negotiate the tax, through so-called “enhanced co-operation”.
The Treasury’s submission to the court last year accepted the appeal might be seen as “premature” and admitted the action was partly a “precaution” to ensure it could sue at a later stage. The ruling does note the UK can potentially take action to annul the tax once it is adopted. Even so, the finding will be a cause for concern, with implications beyond the FTT.
It clarifies that Britain has limited power to block the eurozone from pursuing joint policies under enhanced co-operation that potentially damage UK interests, even in areas such as taxation where the UK wields a veto on EU rules.
It is the second defeat for the UK in Luxembourg and will underline doubts over the UK strategy of turning to the courts for protection against European initiatives that it believes will hit the City.
● September 2011: UK in court challenge to European Central Bank rules requiring clearing houses to be based in the eurozone if they handle more than 5 per cent of the market in a euro-denominated product
● June 2012: UK challenges a law giving the European Securities and Markets Authority the right to ban short selling in emergencies
● April 2013: UK brings challenge in European Court against decision allowing 11 members of the EU to press ahead with plans for a financial transactions tax
● September 2013: UK takes legal action against EU cap on bankers’ bonuses saying it threatens attempts to strengthen financial stability
● January 2014: European Court of Justice dismisses London’s legal attempt to prevent Brussels from winning powers to ban short selling
● April 2014: Judges in Luxembourg dismiss UK’s first attempt to block the financial transactions tax
In January, the court threw out Britain’s bid to curb the power of the EU watchdog to ban short selling, undermining a legal argument Britain has relied on for decades to prevent Brussels from extending its powers.
As well as the FTT and short selling rules, George Osborne, the UK chancellor, has launched legal challenges since 2011 to the EU banker bonus cap and the European Central Bank’s policy on providing liquidity to clearing houses.
Britain challenged the eurozone FTT on grounds that the two European Commission proposals for the tax were extraterritorial and would ensnare trades executed in London.
The Luxembourg judges said “the two arguments put forward by the UK are directed at elements of a potential FTT and not at the authorisation to establish enhanced co-operation, and consequently those arguments must be rejected and the action must be dismissed”.
Eleven eurozone states want to agree a joint tax, but negotiations stalled as key states balked at the original plan’s broad scope and the practical risks of implementing it.
Paris and Berlin are attempting to rebuild political momentum around a compromise that would see the gradual expansion of a levy that would start as a stamp duty on equities and some derivatives.
However reconciling differences over the coming weeks will be difficult. The stamp duty raises little or no revenue for smaller eurozone countries. More important, Paris and Berlin remain at odds over how ambitious and automatic the second phase of the tax should be.
A European Commission spokesperson welcomed the ruling and said it was “always confident” the proposal was legally sound. “We hope that today’s decision will give added impetus to the 11 member states in their negotiations on the common FTT,” she said.
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