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European Union:
CJEU rejects UK challenge to EU financial transaction tax
In a decision issued on 30 April 2014, the Court of Justice of the European Union (CJEU) rejected the UK’s challenge to the
introduction of an EU financial transaction tax (FTT). The European Commission’s revised proposal for an EU-wide FTT was
published in February 2013, to be levied where:
A financial institution undertakes a financial transaction (e.g. a transfer of shares, bonds or derivatives, or a repo
transaction) with another party (regardless of whether that other party is a financial institution); and
One of the parties to the transaction is “established,” or deemed to be established, in one of the participating EU
member states (including where the financial instrument is issued in one of the participating EU member states).
Sales and purchases of shares and bonds would be taxed at a minimum rate of 0.1%, and derivative contracts at a
minimum rate of 0.01% of the notional value, in each case, per financial institution. The Commission had proposed that the
tax should come into effect as from 1 January 2014. However, because it was not possible to obtain the unanimous
agreement of all EU member states, several countries decided to proceed with the introduction of the FTT in participating
countries using the EU enhanced cooperation procedure (ECP). (ECP can be invoked when it proves impossible to obtain the
unanimous agreement of all member states, but a group of at least nine member states decides to move forward with an
The UK government lodged a legal challenge on 18 April 2013 against the decision by the Council of the EU to authorize
the use of the ECP by 11 member states (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia,
Slovenia and Spain) to introduce the FTT. The primary basis for the UK’s challenge was that the imposition of the FTT on
financial transactions that have a connection to one of the participating member states would affect businesses and
residents within nonparticipating member states and, therefore, would infringe EU treaty law.
The CJEU dismissed the UK’s challenge on procedural grounds, concluding that the action taken by the UK government was
premature because it was based on a tax that does not yet exist, nor is there any detail on what the final tax would look
like. As a result, further legal challenge to the FTT (by the UK or other nonparticipating EU member states) should be
possible once there is more clarity on the final design of the tax.
Such clarity on the tax may still be a long way off. According to a joint statement issued on 6 May 2014 by the ministers of
10 of the 11 member states participating in the ECP (Slovenia was not part of the statement due to its upcoming elections),
they remain firmly committed to introducing an FTT through a progressive step-by-step implementation, with the tax initially
applying to shares and “some derivatives” as from 1 January 2016 at the latest. Member states that currently tax the
transfer of other financial instruments (such as bonds) will be permitted to continue to maintain such taxes.
While this is a significant development in the process and implementation approach for the proposed FTT, key aspects of
the design of the tax remain unclear, including the following:
The meaning of the term “some derivatives”;
Whether the tax will apply on the basis of the residence of the parties and/or the market in which the securities are
issued; and
What exemptions will be available (such as those in relation to market making and repo transactions).
The challenge for firms, both within the participating member states and outside of these states (whether or not in the EU),
remains the same – monitoring developments on the proposal and continuing to evaluate how these developments could
have an impact on their businesses.
Gary Campbell (London)
Deloitte United Kingdom
[email protected]
World Tax Advisor
23 May 2014
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23 May 2014
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All rights reserved.