The European Court of Justice Wednesday (30 April) threw out the United Kingdom’s controversial legal challenge against the bloc of euro area nations pressing ahead with a Financial Transaction Tax.

ECJ judges refused to block a tax that had not yet been agreed on. The 11 member states, Germany, France, Spain, Italy, Belgium, Austria, Portugal, Greece, Estonia, Slovakia, Slovenia who are pressing ahead with the FTT through enhanced co-operation, are yet to agree the details of their version of the levy.

Enhanced cooperation is a legal mechanism which allows a group of at least nine nations to pass European laws applicable only among themselves, thereby circumventing the need for unanimity among member states. EU tax law requires unanimity which the European Commission’s original proposal for an EU-wide levy was unable to achieve.

Statement of intent expected on FTT

A declaration by the bloc on the future form of the tax is expected at the ECOFIN meeting of finance ministers on 6 May or at the Eurogroup meeting of euro area nations the evening.

EURACTIV understands it will be a statement of intent to introduce a bloc-wide tax on shares and some derivatives, with a widening scope over different types of derivatives, introduced on a step-by-step basis over a set timeline.

The ECJ said, “The court finds that the contested decision does no more than authorise the establishment of enhanced co-operation, but does not contain any substantive element on the FTT itself.”

The UK expected the ECJ to rule against them, but wanted to set the legal groundwork for a future challenge on the FTT directive. It also did not want to risk that any future challenge was ruled out of time.

A UK treasury spokesman said, “Today’s decision confirms the UK will be able to challenge the final proposal for a FTT if it is not in our national interest and undermines the integrity of the single market. We risked not being able to do that if we had not made this challenge now.

“The government is determined to continue to ensure that the interests of countries outside of the single currency, but inside the single market, are properly protected as the euro area continues to integrate.”

Britain lodged the challenge at the Luxembourg court last year, but a ruling was not expected until 2015. A spokesman for the ECJ said last week that the court has used its discretion not to hold a hearing or seek views from an adviser first, as would be more usual.

UK to challenge again

According to European legal experts, today’s decision does not mean that the reduced scale FTT is inherently treaty-compatible, which supports the UK’s belief it can challenge again.

The UK’s lawyers argued that the FTT would infringe on its sovereignty, because it would be forced to collect the tax on behalf of other states. The government argued it would disproportionately affect the UK because London is home to the largest financial sector in the world.

David Hillman, spokesperson for the Robin Hood Tax campaign, which campaigns for the FTT, said, “This futile legal challenge tells you all you need to know about the UK government’s misguided priorities; it would rather defend a privileged elite in the City than support a tax that could raise billions to tackle poverty and protect public services.

“Complaining that the City will be hit by a European FTT is a clear case of double standards – almost half of the £3 billion (€3.65bn) revenue from the UK’s own FTT, the stamp duty on shares, comes from non-UK residents.”

Katja Hall, chief policy director of the Confederation of British Industry, 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,” Hall added.

A European Commission spokesman, who rejected the idea any reduced scale FTT would harm non-participating member states said, “The commission has always been confident that the decision for enhanced cooperation on the FTT 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. “

Next week’s declaration

The commission originally proposed an EU-wide FTT in September 2011. However, opposition from other member states, including the UK and Sweden, made that impossible. In September 2011, the 11 nations used enhanced cooperation to press on alone.

Several non-participating member states have continued to argue against the idea. Although they sit in on some negotiations, they have no say.

A major sticking point is the residence principle, part of the European Commission’s original proposal for an EU-wide tax. This means that any transaction with a link to the FTT zone would be taxed in the zone and in the other country. If both countries are in the zone, the revenue is split. If not, the total goes to the FTT zone nation.

Following a Paris meeting earlier this week between five participating states, including Germany, France, Italy and Spain, it is believed next week’s declaration will only levy the tax in the country the transaction is issued. France’s existing FTT already works on that principle.

Participating member states are split on whether the levy should be on just shares, or shares and derivatives. Others want only certain kinds of derivatives to be taxed.

The French government has already introduced an FTT covering only shares, while the Italians have a levy covering both shares and some kinds of derivatives.

The German government wants the tax to cover shares and, eventually, all kinds of derivatives, and backs the step by step approach with the scope of the tax increasing over time.

A leaked document by the Greek Presidency of the EU suggests that a step by step approach covering shares and derivatives is likely to be adopted.

Some statement is seen as necessary, because Wednesday’s meeting will be the last before the European parliamentary elections. European Socialists made the FTT part of their manifesto but, more pertinently, so did Austria and France. In Germany, the FTT was part of the deal Chancellor Angela Merkel struck to form her governing coalition.