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Any legislation providing for the introduction of a financial transaction tax (FTT) must respect European Union treaties and the decision of a majority of member countries not to participate, according to the Law Society.
Law Society chief executive Desmond Hudson has written to EU finance ministers to raise the Society's concerns that current Tobin tax proposals do not sufficiently respect the rights and competences of the countries that have chosen not to be involved. The European Commission is accused of failing to "provide the necessary clarity on a number of practical, yet important issues," leading to uncertainty as to "how the tax will be collected and enforced, and what the legal position would be for non-participating member states and third countries."
Hudson's letter further states that the cumulative effect of the levy's "wide scope, the broad definition of establishment, the issuance principle as well as the FTT's joint and several liability is an extra-territorial reach that would make entities in non-participating member states subject to the FTT to an extent far beyond transactions with a genuine link to one of the territories of a participating member state." It could therefore be "fundamentally incompatible" with EU treaties.
Hudson also warns of a potential "'cascade effect' where the structure of the FTT leads to the possibility of multiple charges on one transaction as there is no exemption from the FTT for intermediaries." In turn, this "increases the risk that the tax will ultimately be passed on to end users," while the intended "joint and several liability would have the effect that non-financial institutions may nevertheless be liable for the FTT."
The Society is calling for "an exclusion to put beyond doubt that transactions involving collateral or other amounts provided by way of security are not subject to the FTT," and for the "scope of the primary market exemption" to be made clearer. The Commission should also clarify when the FTT would be charged on derivatives transactions, and make it explicit that the proposed anti-abuse rule is limited to FTT avoidance.
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