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Britain launches legal challenge to Financial Transaction Tax
The UK lodged the challenge at the European Court of Justice in protest at the spillover effects the private agreement might have on the UK economy.
Although the FTT will only be adopted by the 11 euro area signatories, which include Germany, France, Italy and Spain, it will hit investors worldwide.
As it stands, any trade in euro-denominated financial instruments and any transaction with a bank from the 11-nation group, or one of its overseas branches, would be subject to the tax - regardless of where the deal took place.
Speaking in Washington while attending the International Monetary Fund's spring meetings, George Osborne said: "The UK has launched a legal challenge to the European Commission proposal to a Financial Transaction Tax.
"The British Government [is] not against financial transaction taxes in principle - we have stamp duty on shares - but we are concerned about the extra-territorial aspects of the Commission's proposal. That concern is shared by some other countries."
UK financial institutions, as well as international investors from Japan to the US, have been in uproar over the plan. Analysis by the City of London has found that the tax would add almost £4bn to the cost of issuing UK government debt this year.
Like the UK, US officials are also pressing Europe to curb the "extra-territorial" effect. Tom Quaadman, vice-president for capital markets at the US Chamber of Commerce, has said: "There is a potential for regulatory overreach that could harm the global economy."
The FTT is being adopted by the 11 countries under the European Union's "enhanced co-operation" regime, which allows groups within the 27 members to press ahead with joint policies without unanimous support.
However, under Article 327 of EU law, other member states have a right to protect their economies against any impact such agreements might have on their economic interests.
As the City plays such a vital role to the UK economy - and because a large share of euro transactions go through the City and many European banks operate in the capital, Britain could be disproportionately hurt by the new tax.
In principle, the effect would be the same in New York, Tokyo and Singapore - but the impact would in practice be less severe.
The UK Government hopes amendments can be made to the tax as it stands before becoming law, and is currently in constructive negotiations with Germany and France. It has launched the action against the European Commission's "authorisation decision" as a form of insurance policy in case the discussions fail.
A Treasury source said: "We are confident we will find a resolution."
The legal action is the latest in a long list of recent skirmishes with Brussels, including a battle over the EU budget, David Cameron's veto of the EU treaty in 2011, and his pledge to hold and in/out referendum in 2017.
Under the current proposal, agreed in February, the FTT will be levied at 0.1pc on equity and debt transactions and at 0.01pc on derivate transactions within the 11 member group.
It is expected to raise as much as €35bn a year. The European Commission has estimated it could reduce economic growth by a total of 0.5pc over the next 40 years.
[Source: By Philip Aldrick, in Washington, The Telegraph, London, 19Apr13]
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|This document has been published on 29Apr13 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.|