Out-Law News 2 min. read
23 Jan 2013, 3:56 pm
The 'enhanced cooperation' process can be used as a last resort where some member states wish to proceed with a plan that not all EU countries agree with. If nine countries agree to participate then European Commission processes and resources can be used to further the plan. Proposals for an EU-wide financial transaction tax (FTT) were dropped last summer following objections from other member states, including the UK.
"Today was about process, it was about moving the financial transaction tax forward through enhanced cooperation, but it was not about the content or the substance of any financial transaction tax," said Irish Finance Minister Michael Noonan on behalf of the EU's Economic and Financial Affairs Council (ECOFIN). "Member states which don't want to participate in the ultimate financial transaction tax will be fully involved in the process, and will participate fully in the discussions, so it's still a process which will involve the 27 members."
The Commission proposed a directive (31-page / 110KB PDF) aimed at introducing an EU-wide FTT last year, but a Council discussion in June revealed that there was insufficient support for the proposal. As originally proposed, the tax would have applied where financial instruments such as shares, bonds, securities and derivatives were traded between banks where at least one party was located in the EU. A minimum 0.1% tax was proposed for transactions in all types of financial instruments except derivatives, which would have been subject to a 0.01% rate.
Participating member states plan to adopt an FTT which is very similar to the Commission's original proposals. Announcing the agreement, the Commission said that it could put forward a new proposal reflecting the smaller number of participating countries as early as next month, which will have to be adopted unanimously by the 11 states. Those states in agreement are Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.
The UK has never supported an EU-specific FTT, stating that any tax would have to be applied "globally" to prevent financial traders rerouting their transactions to countries outside of the EU. In a highly critical report on the original proposal, published in March last year, the House of Lords denounced the tax as "flawed" and warned that its adoption by the UK would force banks to relocate from the UK's financial centre in the City of London.
The UK abstained from the ECOFIN vote, along with the Czech Republic, Malta and Luxembourg. ECOFIN deals with fiscal and economic policy matters, and is made up of the economic and finance ministers of the various EU member states.
Tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law.com, said that the adoption of an FTT would come as a "blow" to the banking industry, but pointed out that proposals had not yet been finalised.
"All is not yet lost - such EU initiatives have a way of getting mired for years once the politicians hand over to the drafters of the detail," she said. "Here's hoping that the difficulties of applying such a tax where not all the EU countries agree on its implementation and scope will pull the teeth of this particular behemoth."
