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Friday, December 06, 2013

The EU’s zombie tax

Back in September, we wrote on this blog that the EU’s Financial Transaction Tax was “dying a death of a thousand cuts”.

However, following that opinion of the EU Council of Ministers' legal service, the European Commission has hit back with its own legal opinion. We have got our hands on the full text, which can be seen here (thanks to Italian magazine Valori for posting it on its website). 

Despite this, we stick with our statement. For all intents and purposes, the extensive FTT that was initially proposed by the Commission seems to be dead as a policy. Indeed, it remains part of a rather heated technical discussion within the EU institutions - but we have already noted the likelihood of it returning in a much watered down version to save face of those invested in the idea.

It is, therefore, a living dead policy – a 'zombie tax' if you will.

The Commission’s counter arguments are very specific to those put forward by the Council’s legal service – itself setting up an interesting head on clash between the two bodies – the main points of which are:
  • The Council does not present any legal basis for its argument that the FTT breaches international law. The Commission stresses that the issue of “more relevant” right to impose taxes is not legally defined.
  • The Commission essentially argues that its FTT proposal does present enough of a nexus between the state and the transactions to allow for taxation – specifically that the counterparty principle fits with international law.
  • That the FTT does fit with the enhanced cooperation procedure since it does not stop non–participating member states from pursuing their own financial taxes.
  • “What the Council LS perceives as discrimination is in reality nothing but a disparity between different national tax regimes.”
The first thing that is clear, is that this is beginning to become an intensely theoretical legal discussion. It remains important, but the practical and political aspects should not be forgotten.

As we highlighted along with our exclusive release of internal documents earlier this year, one of the key reasons behind the loss of enthusiasm for the FTT was the economic impact. It became clear it is not practically workable in many cases, particularly due to its impact on repo markets as well as government and corporate bond markets.

We also still strongly agree with the Council’s take. While in legal terms the impact on non-participating states can be fiddled, in real terms there will be a sizeable impact on the financial sectors of states explicitly opposed to the tax – something which remains politically explosive in terms of EU precedent.

Again, with the FTT now slowly ambling along in zombie mode we’re sure this is not the last we have heard of it.


Anonymous said...

" but we have already noted the likelihood of it returning in a much watered down version to save face of those invested in the idea".

So we continue blindly along with it and damage the EU economy more and more - just to save face. The continent needs jobs and growth-oriented policies not more of the same failed approach.

I can't see Goldman Sachs, or anyone else for that matter, moving its Operations to the Eurozone anytime soon, despite what their Head of Operations may say.

I say to financial firms in the Eurozone, welcome to London. We are open for business and will soon be rid of this cancer that is blighting our economy and the prospects of our children.


Rik said...

In this respect the noise GS and a few others are making simply looks like awful bluffing.
Also mentioning Paris as an alternative simply doesnot make it better.
London in basically any set up looks far superior to any other location. Strange things should happen if that would be otherwise in say 2020.

Anonymous said...

i got a question. does the european parliament have no voice in this matter. isn't any comission proposal to be discussed in the parliament before the european council can revise it?
thanks for your help...

Anonymous said...

First european commission proposes then council and parliament agree on the legislation. Council majority votes rules change if commission agrees on the text or doesn't. That's how the process works.

Anonymous said...

It won't die they will rename it the fiscal swap tax, and railroad us the same way they did with the constitution/lisbon treaty, no difference except for the name.

Anonymous said...

thanks. that's what i thought. so, this means there is some reporting missing, that about the eur.parliament, right?
are there any legislative proposals or amendments by the parliament?

Open Europe blog team said...

Thanks for the comments.


The process is a bit different under so-called ‘enhanced cooperation’, which is being used to develop the FTT. The European Parliament (EP) voted in July to approve the proposal for an FTT under enhanced cooperation:

However, once the EP’s approval is given for enhanced cooperation, the negotiations are left to the participating member states, although in this case other member states have remained involved (via legal action) due to concerns over impacts outside the direct FTT zone.

Anonymous said...

thank you for your explanation! i understand... so the Council in question is a reduced European Council (with only the "willing" member states involved), i guess...