Osborne issues legal challenge to transactions tax
20 Apr 2013
UK Chancellor George Osborne said that the UK government had launched a legal challenge to European plans for a financial transactions tax to be adopted by 11 EU states.
The unprecedented legal challenge comes in the form of an application being lodged at the European Court of Justice against the Financial Transaction Tax (FTT).
The UK fears that the tax, which would be adopted by eurozone countries would deprive London of its preeminence in Europe as a global financial centre, as it would impact investors globally.
UK has made it clear in the past that it would not adopt the FTT and opponents of the tax feared it would be levied on British firms trading with businesses in participating states, including France and Germany, which they say would affect domestic growth.
Osborne clarified that the government was not against financial transaction taxes in principal but it was concerned about the extra-territorial aspects of the Commission's proposal and he thought that concern was shared by some other countries.
The FTT imposes a tax of 0.1 per cent tax on shares and bonds trade, and of 0.01 per cent for derivative instruments.
According to the EC if any of these investments originated in one of the 11 FTT states, they could be taxed wherever they were traded, giving them a global reach.
Osborne told Sky News, that what he was up against was the EC coming up with a tax that hurt UK. He said he wanted to make it clear the UK did want to be affected by a European financial transaction tax even it was not directly part of it.
Osborne said the reason for the legal challenge was that the tax would also hit the UK itself in two ways: first because it would affect any euro-denominated transactions – many of which happened in London.
Second, all transactions of banks with headquarters in the signed-up EU nations would be subject to the tax, even if they were in London or outside Europe.
According to commentators, this is the first time the UK had challenged legislation of the kind.
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