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FTT- ECJ to UK: “Come back later”

The ECJ yesterday rejected the UK’s application for annulment of Council Decision 2013/52/EU of 22 January 2013 authorising enhanced co-operation for the financial transaction tax (FTT). The ECJ judged the UK’s challenge to be premature, an unsurprising procedural decision that the FTT cannot be substantively challenged until its terms are finalised in a directive.

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

The UK’s concerns were that:

  • The FTT’s “issuance principle” and “counterparty principle” produce extraterritorial effects, adversely affecting the rights of non-participating member states.
  • Enhanced FTT indirectly imposes non-recoverable costs on non-participating member states via requests for tax recovery under the mutual assistance and administrative co-operation directives.

Simply put, the enhanced FTT infringes UK sovereignty by forcing it to collect tax on behalf of others and it would be very expensive, especially for London. The UK challenge to a routine decision to authorise enhanced cooperation was never likely to succeed and the ECJ’s refusal to rule on a mere proposal was expected. Instead, it represents a “shot across the bows”, acting as a sharp reminder for the 11 member states to carefully consider the extra-territorial, and UK-specific, implications of their final formulation.

The initial FTT proposal was unveiled in February 2013, seeking to impose a 0.1% tax on equity and bond transactions and 0.01% on derivatives. Agreement on the substantive details has been stalled by a lack of consensus among the 11 states in the enhanced cooperation group. We may expect a relatively rapid meeting of minds before the self-imposed 22nd May EU electoral deadline. The UK will be first in line to submit a challenge to the finalised proposal; round 2 promises to be a more interesting match.

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