EU lawyers clash over legality of 11-nation transaction-tax plan

European Union lawyers are clashing over whether a proposed 11-nation financial-transaction tax is legal under the 28-nation bloc’s governing treaties.

Lawyers for the Council of the European Union, which represents the executives of EU member states, say the tax plan goes too far and would discriminate against countries that don’t participate, according to an EU document. The legal service of the European Commission, which proposed the levy, stands by the plan and will offer a rebuttal, said Emer Traynor, a spokeswoman for EU Tax Commissioner Algirdas Semeta.

“We strongly disagree” that the tax plan overreaches, Traynor said by telephone in Brussels today. “We did our own very thorough legal analysis before presenting the proposal.”

The EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by France, Germany and nine other EU nations that have so far signed up. The plan would charge a 0.1% rate for stock and bond trades and 0.01% for derivatives transactions, with some exemptions for primary-market sales and trades with the ECB.

The feud centers on proposals for worldwide tax collection on trades involving a bank or financial security based in one of the participating nations. The council’s Sept. 6 legal opinion said the EU can’t justify such an aggressive approach just to keep traders from moving outside the zone of participating nations.

‘Tax Evasion’

“It cannot reasonably be argued that there is an overwhelming necessity to make financial institutions established outside the FTT jurisdiction liable for FTT on their transactions with counterparties resident or otherwise established in that jurisdiction in order to fight fraud or tax evasion,” according to the council opinion.

The council makes EU laws in tandem with the European Parliament. In most cases, the council can only legislate based on proposals made by the Brussels-based commission, the EU’s executive arm, according to the bloc’s website.

The commission’s plan exceeds the jurisdiction of participating nations, infringes on the taxing powers of non- participating nations and “is discriminatory and likely to lead to distortion of competition to the detriment of non- participating member states,” the council opinion said. It said Semeta’s plan doesn’t address problems of double taxation that result from the way the tax would be collected.

The council’s legal opinion is on separate grounds to a challenge by the U.K., which questions the procedures used to plan the tax. The council legal opinion was reported earlier today by Reuters.

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