EU lawyers warn over financial transactions tax

A proposed European Union (EU) financial transactions tax (FTT) is illegal and should not be implemented, according EU lawyers.

The financial transaction tax (FTT) is due to be implemented in 11 member states, excluding the UK. It will tax transactions of shares, currencies and bonds.

According to the European Commission's Taxation and Customs Union the tax is designed "to prevent the fragmentation of the Single Market that could result from numerous uncoordinated national approaches to taxing financial transactions." It is also designed "to ensure that the financial sector made a fair and substantial contribution to public finances," and it is supposed to "discourage financial transactions which do not contribute to the efficiency of financial markets or of the real economy."

The participating EU countries are Germany, France, Italy, Spain, Belgium, Austria, Portugal, Greece, Slovenia, Slovakia and Estonia.

According to a legal opinion by the EU Council Legal Service, the tax would exceed member states' tax powers. The opinion also mentioned that the tax "infringes upon the taxing competences of non-participating member states," and so would be incompatible with the EU treaty.

The legal opinion went on to say that the low number of participants in the tax is "discriminatory and likely to lead to distortion of competition to the detriment of non participating member states".

In April the British government began a legal challenge to the tax in the European Court of Justice. British ministers are concerned that British companies will be affected by the tax when trading with firms in FTT-compliant state.