A plan to tax financial transactions in 11 European Union countries from next year has hit a major snag.
EU lawyers said that as currently proposed the measure breaks treaties and international tax law and would distort competition so it is illegal.
This may be the final nail in the coffin for the tax, which is being challenged by Britain in the EU’s top court on the basis that it would affect transactions carried out beyond the borders of countries that sign up for it. Britain is the bloc’s largest financial centre.
However the lawyers’ opinion is not binding and Germany says it still wants the levy to be introduced quickly.
And EU Tax Commissioner Algirdas Semeta, who drafted the plan, strongly disagrees with the opinion, his spokeswoman said.
“We stand firm that the proposed FTT is legally sound and fully in line with the EU treaties and international tax law,” the spokeswoman added.
The tax is aimed at raising about 35 billion euros a year from banks to compensate for the taxpayer aid they receiving during the financial crisis.
EU finance ministers will consider the conclusions and decide whether to scrap the idea, refine the proposal or chose a simpler levy.
Britain and 15 other EU member states refused to support the transaction tax proposal and questioned how it would work with only some members participating.
Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia were planning to adopt the tax on stocks, bonds, derivatives, repurchase agreements and securities lending.