THE EUROPEAN COMMISSION has sharply rejected suggestions that a controversial Financial Transactions Tax, championed as a way of making the banks pay for their past excesses, contravenes EU law.

The commission “carried out a very thorough legal analysis” before submitting its FTT proposals,” EU Tax Commissioner Algirdas Semeta said in a tweet.

“The FTT is legally sound and is fully in line with EU treaties” and international tax legislation, Semeta said.

Press reports said an opinion drawn up by lawyers for the European Council — the EU’s political arm comprising member countries — had found that the FTT would discriminate and disadvantage those who do not adopt it.

€30-35 billion

The commission believes the FTT, championed by France and Germany, would raise €30-35 billion annually via a levy on trade in shares, bonds and derivatives.

The tax would apply to any transaction, anywhere in the world, carried out by a financial entity which is based in one of the 11 EU member states which have so far agreed to implement it.

But the council’s lawyers said that this was a step too far, exceeding the tax jurisdiction of those EU states.

It “is not compatible” with the current EU treaty “as it infringes on the tax competences” of non-participating states, the opinion said.

‘Likely to lead to distortion of competition’

In addition, the FTT “is discriminatory and likely to lead to distortion of competition to the detriment” to those who do not sign up, it added.

For example, such discrimination could punish Britain, a financial powerhouse which bitterly opposes the FTT and refuses to join.

As the FTT currently stands, in a trade between a French and British bank, France would tax both entities.

Meanwhile in a trade with Germany, which backs the plan, France would tax only its bank and Berlin the German counterparty, meaning that France would earn twice the tax on a trade with a non-FTT country such as the UK.

Emer Traynor, Semeta’s spokeswoman, said the Commission “strongly disagrees” with the Council’s legal opinion, charging that it looked at only one part of the FTT and “not the tax as a whole.”

“In any case, this opinion is one of many which have been fed into the discussions … it certainly doesn’t imply any necessary slowdown” in work on the proposal, she said.

The commission legal service will, however, analyse the opinion “in further detail”, she added.

France and Germany have led efforts to introduce the FTT, winning backing from Austria, Belgium, Estonia, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

The UK , where London is home to one of the world’s largest financial centres, sees the FTT as infringing on its right to tax, a sovereign power not to be shared with Brussels.

The 11 member states in favour were authorised to go ahead with the planned levy under what is known as “enhanced cooperation”, a rare procedure enabling a minimum third of EU nations to work together without the rest when there is no general agreement.

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© -AFP