A UK government legal challenge to the proposed European financial transaction tax (FTT) is unlikely to be last, experts have said, after an EU court rejected the bid.
The case had attempted to block moves by 11 European countries to impose a financial levy with extraterritorial rules that could impact traders based in London’s financial district.
However, the court said that, as the details of the tax have yet to be finalised, it could not pass judgment on them.
“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,” the European Court of Justice (ECJ) said in a statement.
However, regulatory experts said the current challenge is just the beginning of wider UK action to prevent the FTT from damaging the City of London.
“Today’s decision was widely anticipated as no FTT has been agreed, but this does not preclude the UK government or others from making future challenges,” said Jorge Morley-Smith, director, tax at UK buy-side body the Investment Management Association (IMA).
The ruling effectively approves the use of enhanced cooperation by groups of European member states, enabling them to create their own cross-border legislation without needing approval from all 28 members. The rejection of the challenge to the FTT is due to a lack of formal proposals, leaving the door open for future contests.
Christian Voigt, product manager at technology provider Fidessa, explained: “The court has rejected the UK government’s case because there is no firm agreement on how the FTT will actually work yet. There are many details, such as which asset classes will be affected, will it be limited to certain counterparties and whether market makers will be exempt, which need to be fleshed out first.”
Though it was widely expected that the ECJ would reject the move, Morley-Smith said the challenge, which was made under legal advice, was largely made to help the UK protect its position, by enabling the government to renew the challenge in the future.
“This legal action sends a clear message from the UK to its European counterparts that it views the FTT as a tax on consumers, on savers and on pension funds,” he added.
But Juan Pablo Urrutia, managing director and European general counsel at agency broker ITG, said he was disappointed that the ECJ dismissed the case on technical grounds.
“We shouldn’t be in a position where the highest court in Europe, the European Court of Justice, is going over technical implementation details of the FTT before it considers the merits of the UK’s case. It is important to recognise that the ECJ is not a court of first instance; it should be in a position to provide a ruling on the key pillars of the EU treaties.”
Urrutia said the ECJ should be able to pass judgement on whether individual European nations can create taxes that can be applied to investors in third countries that have not agreed to them.
Further details of how the FTT might look are expected to be revealed next week, when the European Union’s ECOFIN Committee meets to try and reach agreement on key issues surrounding the tax.