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If the European Commission goes ahead with its plans for a Financial Transactions Tax (FTT), London's position as a leading financial center could be under threat, a legal expert has warned.
Sandy Bhogal, Mayer Brown's Head of Tax in London, made the comment ahead of an event on the UK's relationship with the European Union (EU).
The UK Government is currently reviewing its EU membership, and Prime Minister David Cameron could push for a referendum on the issue before the end of 2017. Bhogal contends that, in the context of the ongoing row over the proposed FTT, it "might be better for the UK to stay in the EU to at least have a voice in shaping tax policies."
Eleven EU member states have signed up to the Commission's "enhanced cooperation" procedure, which allows countries wishing to work more closely together to do so, as a means for implementing a Tobin tax. The UK Government has been a consistent opponent of the proposals.
Bhogal's concern is that the Government's decision will not safeguard the UK from the potential knock-on effects on an FTT. He explained that "the FTT could still be imposed on British businesses, seriously inhibit financial transactions in the UK and threaten London's position as a leading financial center if businesses decide to shun the EU together."
Last month, a report by Legal Service pointed out that the FTT could breach EU treaty rules. The report, commissioned by the European Council, warned that the FTT risked "disrespect[ing]" the fiscal competences of non-participating states.
Bhogal said at the time that "if the current proposal is really watered down and changed substantially, it is possible the current draft will have to be shelved, and European regulators will have to start again, which could also act as an impetus for member states to introduce national FTTs."
Mayer Brown will be running a series of events over the coming months designed to spark debate about the UK's future in Europe.
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