European court allows financial transaction tax proposal to move forward
The European Court of Justice struck down a UK procedural challenge to an agreement that would allow 11 European countries to co-operate on a financial transaction tax system (United Kingdom v. European Union, No. C-209/13 (E.C.J. April 30th 2014)). The decision allows the countries to proceed with plans to implement a tax on financial instrument transactions between financial institutions, such as stock and bond sales and derivatives trading.
The UK filed suit asking the court to strike down EU Council Decision 2013/52/EU (January 22nd 2013), which authorises participating EU member states to co-operate in taxing financial transactions. Eleven EU member states had requested the council decision after a 2011 proposal for a common system of financial transaction taxation failed to pass.
Under Council Decision 2013/52/EU, those 11 EU countries (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) agreed to co-operate to establish a common system of financial transaction taxation in their countries when at least one party to the transaction is established in one of the 11 countries and the transaction involves a financial institution in one of the 11 countries.
While the financial transaction tax has not yet taken effect, the court agreed to hear the case.
In suing to stop the council decision, the UK relied on two arguments: That the decision produces extraterritorial effects, contravening Article 327 of the Treaty on the Functioning of the EU (TFEU) and customary international law, and, in the alternative, that the proposed system of financial transaction taxation will impose costs on non-participating EU member states, contravening Article 332 of TFEU.
The court ruled against the UK on both points because both issues involve any future financial transaction tax that might be implemented, not the countries' decision to co-operate. On the first argument, the court said, "The principles of taxation challenged by the United Kingdom are, however, not in any way constituent elements of that decision." Regarding the second argument, the court noted that, "the contested decision contains no provision related to the issue of expenditure linked to the implementation of the enhanced co-operation authorised by that decision."
It held that the question of whether a future financial transaction tax would impose administrative costs on non-participating EU member states could not be resolved until the principles of taxation for the financial transaction tax have "been definitively established as part of the implementation of the enhanced co-operation authorised by the contested decision."
The court then dismissed the action. However, the court cautioned that this decision settles only the council decision itself and not the merits of any future financial transaction tax.
Details of how the financial transaction tax would work have not been finalised. Finance ministers from the 11 countries reportedly plan to meet in Brussels on May 5th and 6th to continue negotiations.