BY Richard Summerfield
The European Court of Justice has rejected the UK’s legal challenge to the introduction of a financial transactions tax (FTT). The Court’s decision on 30 April dealt a blow to London's efforts to stop a levy that may adversely affect its status as Europe’s financial centre.
As the proposal has not yet been agreed by the 11 European countries, including France and Germany, which intend to implement the tax, the UK’s case was restricted to simply challenging the right of the countries to proceed with the bill. The Court found against the UK, claiming “the contested decision does no more than authorise the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself.”
Although the UK will not sign up to the FTT, which has been dubbed the ‘Robin Hood’ tax by some, the ruling is still likely to affect the UK, as the FTT is intended to have extra-territorial effects.
The UK’s objection to the FTT is predicated on ensuring the EU's single market does not become fragmented between the countries inside and outside the eurozone. However, a spokesman for the UK Treasury added that the court’s decision “confirms the UK will be able to challenge the final proposal for a FTT if it is not in our national interest”.
In its ruling the Court did not comment on the merits of the UK’s challenge. Accordingly it seems likely that the UK will further challenge the finalised FTT.
However, critics of the UK’s objection, as well as the Court itself, noted the challenge seemed premature given that the nature of the tax has yet to be confirmed. The levy is intended to raise public funds and discourage speculative trading by taxing the transactions of shares, currencies and bonds.
Furthermore, some analysts have stated that the UK’s objection to the FTT is merely another attempt to defend the city’s ‘rich square mile’, a reference to London's financial quarter. France and Germany in particular have championed the tax – policy-makers in both countries believe that the implementation of the FTT will go some way toward forcing the financial sector bear some of the costs and responsibility for the economic crisis. It will also serve to dampen speculation on the European bonds and derivatives markets.
Press release: Court of Justice of the European Union