Cécile Sourbès wonders what might come of the UK's legal challenge to the FTT.
The UK government's recent legal appeal against the financial transaction tax (FTT) is interesting for at least two reasons. To date, the UK has displayed strong political initiative and energy in rejecting the FTT, but it has met with little success. And when the political paths are exhausted, often only the legal path remains. It would not be unreasonable to think, then, that the UK's complaint, filed last week with the EU Court of Justice (ECJ), is a last-ditch attempt to derail the controversial tax.
The UK government justified its move in precise terms. Speaking at a meeting of finance leaders at the International Monetary Fund (IMF) in Washington last week, chancellor of the exchequer George Osborne said his country was not opposed to the FTT in principle but rather concerned about its "extra-territorial" aspects.
The filing of the UK government's legal challenge followed closely on the heels of a report by the City of London Corporation. In this report, published at the end of last month, the authority warns of the "severe" effects of the tax on EU member states not participating – particularly the UK, due to its companies' greater reliance on the bond markets over bank loans.
The UK's argument is essentially that the FTT constitutes a breach of the EU treaty. The Treasury contends that the enhanced cooperation procedure has not been properly respected, since the FTT's impact is not limited to the 11 countries backing the tax – namely Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
This raises a question – what are the UK government's chances of seeing the ECJ ruling in its favour? Under article 326 of the treaty of the EU, Brussels clearly states that such enhanced cooperation shall not undermine the internal market or economic, social and territorial cohesion. The treaty also states that the enhanced cooperation procedure shall not constitute a barrier to or discrimination in trade among member states, nor shall it distort competition between them.
In that sense, if the UK were able to show that the enhanced cooperation process was in breach of the EU treaty, the ECJ could rule in favour of the Treasury. However, as Ben Jones, principal associate at law firm Eversheds, explains, while Brussels might amend the tax to comply with the treaty, there is virtually no chance of it abandoning the proposal altogether.
Jones also points out that other member states that have not backed the FTT might be waiting to see how the UK's challenge fares. "If the ECJ rules in favour of the UK, then other states might decide to require some amendments to the FTT," he says.
So far, only Luxembourg has backed the UK in its decision to follow a legal path. But other member states might have some good reasons to follow, starting with the Netherlands. Late last year, the Dutch government decided to withdraw from the FTT after Brussels refused to exempt pension funds. If the UK wins its case, might the Netherlands push harder and ask Brussels to reconsider its decision? Who knows what could happen if the Dutch and other member states get on board.