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CJEU dismisses UK's action against EU's financial transaction tax

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The CJEU has dismissed the action brought by the UK against the decision authorising 11 member states to establish enhanced cooperation in the area of financial transaction tax. In its decision, the court ruled that it cannot contest elements of the FTT until it becomes reality for the 11 EU countries signed up to the proposals.

A European Commission spokesperson welcomed the ruling, saying it was ‘always confident’ about the proposals and adding: ‘We hope that [the] decision will give added impetus to the 11 member states in their negotiations on the common FTT.’

Florian Lechner, tax partner at the law firm Linklaters, commented that the decision was ‘not entirely surprising’, saying: ‘It’s still too early to know exactly what the final version of the FTT will look like. But the challenge may have helped to focus the minds of the member states backing the tax so that we end up with something that is more agreeable when it comes to the extraterritorial impact.’

'Procedure not substance'

The news will come as a disappointment to opponents of the EU proposals, who had their hopes raised last September when the legal adviser to the EU’s finance ministers, the Council Legal Service, concluded that one of the main provisions of the proposals was ‘discriminatory, overreached national jurisdiction and infringed the EU treaties’. 

However, as experts have observed, the ruling does not preclude a further challenge to the proposed tax.

Gary Richards, chair of the Law Society's Tax Law Committee, said: 'What’s important to understand is that this is only a ruling on the procedure used for the financial transaction tax. The ruling does not address the substance of the FTT legislation itself, which is actually still being negotiated as the 11 participating member states have yet to reach agreement on some of the most basic aspects of the tax.'

Kevin Cummings, financial services partner at BDO, made similar observations: ‘As the court's rejection was based on its view that there is no “final” proposal in place for the UK to object to, some will view it as a technicality given that both lawmakers and the financial services industry are fully aware of which transactions and instruments the EU really wants to tax.’

Simon Leach, financial services tax partner at PwC, added: 'The judgment provides no further commentary or analysis on the legality of specific aspects of the proposed directive, in particular the extra-territorial reach of the proposed tax. This is because no final version of the directive has been adopted.'

The CBI remains vocal in its opposition to the proposed tax. Katja Hall, CBI chief policy director, said: ‘This decision about legal procedure doesn’t change the fact that the FTT will damage growth, jobs and investment across Europe. It will have a far-reaching impact on non-participating member states, by including extra-territorial reach into financial services activity conducted in the UK. As the UK’s largest single trading partner, a healthy European economy is in everyone’s interests so we urge that this damaging tax is reconsidered.’

Reported by Paul Stainforth, with additional reporting from Santhie Goundar.