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Luxembourg May Take Legal Action Over FTT

by Ulrika Lomas,, Brussels

22 May 2013

The Luxembourg Finance Ministry has recently issued a statement clarifying the Grand Duchy's position on the planned introduction of a financial transactions tax (FTT) in 11 European Union (EU) member states, within the framework of enhanced cooperation.

Alluding to the European Commission's plans to apply the principles of "residence" and "issuance," the Finance Ministry highlights the fact that all financial establishments established in non-participating states, including Luxembourg, will be required to pay the FTT, if a financial transaction is realized with a moral or natural person resident in one of the 11 participating jurisdictions. Luxembourg opposes this mechanism, as it will merely serve to penalize those countries that do not wish to participate in the FTT, the Finance Ministry stresses.

While in favor in principle of a tax on financial transactions, to ensure a better coverage of the systemic risks that some transactions pose, Luxembourg insists that the levy should be applied on a global level, particularly in view of the increased and ever-growing interdependence of the world of finance. Luxembourg also recommends that the product of the tax should flow to a European instrument, such as the European Budget or the European resolution fund.

Referring to Sweden's experience of introducing an FTT unilaterally, Luxembourg’s Finance Minister Luc Frieden warned against uncoordinated action and against a field of geographical application that is too limited. Frieden therefore criticized the fact that the mechanism of enhanced cooperation has been initiated. Without guaranteeing a wider application of the FTT, there is the real risk of capital flight to countries that do not levy the tax, as well as the risk of a fragmentation of the Single Market, the Finance Minister said.

Underscoring that Luxembourg has "strong doubts" regarding enhanced cooperation, sharing the main views expressed by the UK, the Luxembourg Finance Ministry nevertheless points out that the Government has not as yet submitted an appeal to the European Court of Justice, challenging the mechanism.

This does not mean, however, that the Grand Duchy will not take action. Back in January 2013, Luxembourg issued a statement on the Council Decision authorizing enhanced cooperation in the area of a Financial Transactions Tax. At the time, it made clear that Luxembourg "considers that enhanced cooperation should not be used as a tool to impose on financial institutions established in non-participating member states a tax on which an agreement could not be reached on the level of the 27 member states."

The Government warned: "Luxembourg reserves the right to seek all legal remedies available in case it considers that the future tax does not respect the relevant Treaty provisions on enhanced cooperation, or is incompatible with the good functioning of the internal market."

TAGS: Finance | tax | European Commission | tobin tax | Luxembourg | Sweden | European Union (EU) | Europe

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