EU rejects UK challenge on Financial Transaction Tax

The EU dilemma

They nearly killed the Tory Party

Those Brussels bureaucrats;

We see them always interfering

From their Brussels habitat.

But perhaps they’re not so bad at all

With their bankers tax;

The sore temptation with all those bankers

Is to give them all the axe.

      

ECJ dismisses UK challenge on FTT

The EU Court of Justice (‘ECJ’) has rejected the UK’s legal challenge to the introduction of an EU financial transactions tax (‘FTT’) by a breakaway group of 11 countries. In this case, the United Kingdom had asked the Court of Justice to annul a Council decision authorising eleven Member States to use the enhanced cooperation procedure to set up a financial transaction tax (‘FTT’). That decision was adopted when, after three Council meetings in June and July 2012 where a Commission 2011 proposal for a directive was discussed, it became obvious that an FTT could not obtain unanimous support within the Council in the foreseeable future.

In its ruling, the ECJ said the arguments the UK presented were directed at the elements of a future tax, rather than at the group’s authorisation to establish a FTT.

The ECJ said:-

‘The United Kingdom considers that the contested decision authorises the adoption of an FTT which produces extraterritorial effects. It further maintains that, read together with other directives on mutual assistance and administrative cooperation in the area of tax, the FTT will impose costs on non-participating Member States. The United Kingdom accepts that its action might be regarded as premature and that, rather than challenging the authorisation decision, it should contest, at the appropriate time, the implementing measure which will ultimately be adopted by the participating States. Nonetheless, it decided to bring, as a precaution, an action for the annulment of the authorisation decision in order to preserve its right to challenge such an implementing measure.’

The ECJ was not impressed and dismissed the United Kingdom’s action. The Court stated that, in the context of an action for the annulment of a decision which authorises enhanced cooperation, the Court’s review is related to the issue of whether the granting of such authorisation is valid. That review must not be confused with the review which may be undertaken, in the context of a subsequent action for annulment, of a measure adopted for the purposes of the implementation of the authorised enhanced cooperation.

In this case, the Court found that the contested decision did no more than authorise the establishment of enhanced cooperation, but did not contain any substantive element on the FTT itself. The elements of a future FTT challenged by the United Kingdom were in no way constituent elements of the contested decision.

Levy and Levy comment

The defeat of the UK Government is a reminder of our often uneasy relationship with the EU and the controversy surrounding the implementation of an FTT. There is little doubt that the UK Government will continue its challenge of the FTT as the ECJ ruling only related to the procedure used for the financial transaction tax and did not address the substance of the FTT legislation itself.

Levy & Levy – the tax investigations and resolution specialists in London and Tunbridge Wells