THE UK AND BRUSSELS is set be on a collision course after the government launched legal proceedings against the financial transactions – or Tobin – tax set to be adopted by 11 EU states.
Britain staunchly opposes the levy, which sees a 0.1% tax imposed on the value of stocks or bonds and 0.01% on derivative contracts and will be introduced across 11 EU countries. Crucially, the tax will apply to transactions based on where the financial product was issued, and while it will not be Europe-wide, it could regularly affect trades made not only in Paris and Berlin, but London – despite the UK’s opposition – and even further afield.
Worries have been raised over the spillover effect the tax will have, with George Osborne (pictured) telling the International Monetary Fund spring meeting in Washington that the UK is “concerned about the extra-territorial aspects of the commission’s proposal. That concern is shared by some other countries”, the Telegraph reports.
Indeed, five global markets associations called on the G20 to intervene, claiming the measure is “contrary to G20 principles”, while the UK believes it could be disproportionately hurt given the City’s pivotal role in the country’s economy.
However, European leaders, including France’s François Hollande, have placed the Tobin Tax at the top of their agenda in order to make banks “pay” for the financial crisis, and act as a key source of revenue.
Analysis by the City of London, though, estimates it will add almost £4bn to the cost of issuing UK government debt this year, while the EU believes the tax will generate around €35bn (£29bn).
The UK hopes amendments can be made to the tax as it stands before becoming law, and is currently in constructive discussions with Germany and France. It has launched the action against the European Commission’s “authorisation decision” as an insurance policy should discussions prove unsuccessful.
Sandy Bhogal, head of tax at law firm Mayer Brown, said: “The UK’s challenge may seem precipitous as it pre-empts any agreement of the 11 member states on what a financial transaction tax should look like, but it is protective. There is case law of the European Court which states that if a person does not challenge a decision at the first opportunity, that decision becomes definitive against him and he cannot later challenge the legality of the decision.”
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