Wednesday, 16 November 2011 the order of the day. Financial Transaction Tax - Nein und abermals nein ! !!

The crisis in the "Eurozone" is exceptionally worrying and, at the time of writing, the contagion appears to be spreading.  The extent of the UK's exposure to all of this is not at all clear.   The view has been expressed, notably by the German politician Volker Kauder, that the UK must help rescue the Eurozone - (Telegraph 15th November 2011).  It also appears that Kauder is of the opinion that the UK could not block a proposed financial services tax which has been described by George Osborne as a bullet aimed at the heart of London and which was rejected in April 2011 by the Confederation of British Industry (CBI).

Within the UK, "Euroscepticism" appears to be the order of the day and comments such as that of Volker Kauder will only serve to add fuel to the eurosceptic fire.   On Monday, speaking at the Lord Mayor's Banquet,  David Cameron referred to himself as a sceptic though his speech left no doubt that leaving the EU is not in our national interest and 50% of our trade is with Europe. Cameron
wishes to see an outward-looking Europe; "the flexibility of a network, not the rigidity of a bloc." He called for the single market in services; opening up of energy markets and the "scrapping of bureaucracy."  He further indicated a desire, without being specific, for powers to be restored to the UK -

"An opportunity, in Britain’s case, for powers to ebb back instead of flow away ……. and for the European Union to focus on what really matters."

There is little doubt that change will come about as a result of the current crisis but it is extremely difficult to see precisely what the changes might be.  Certainly, the outcome will involve either new Treaty arrangements with Europe or amendments to the existing treaties.  At the present time, the key European Treaties are the consolidated versions of the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU).  Under the European Union Act 2011, the British government would have to hold a referendum in the UK to approve certain changes.  (Law and Lawyers looked at the 2011 Act in "EU: When must a referendum be held"- 24th October).

Leaving the EU:

For some, leaving the EU is their desire and Article 50 (1) of the TEU provides for a Member State to leave: - "Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements."

The Article then goes on to provide a process for withdrawal including an agreement with that state, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.  (Article 50 also enables a State to rejoin).

It would be pure conjecture to try to guess what the terms of such an agreement would be but obviously trading relationships would have to be dealt with.  A key factor would be that the UK would step outside the "single market."  The European Union Act 2011 does NOT require a referendum of the British people for leaving the EU.

A legal basis for action:

The EU must act within the limits of the powers conferred on it by the Treaties and by the objectives of the treaties - see TEU Art 5:

Article 5

1. The limits of Union competences are governed by the principle of conferral. The use of Union competences is governed by the principles of subsidiarity and proportionality.
2. Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States.

Thus, the EU is not empowered to take any legislative action unless there is a legal basis for it.  The legal basis will be in the Treaties.  So, is there an existing legal basis for the EU dreaming up a "financial services tax" and imposing it on Member States?  The basic answer appears to be NO.

One possibility might appear to be the EU's general legislative power under TFEU Art 352:

"If action by the Union should prove necessary, within the framework of the policies defined in the Treaties, to attain one of the objectives set out in the Treaties, and the Treaties have not provided the necessary powers, the Council, acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament, shall adopt the appropriate measures ......"

Even if, for the sake of argument, it is accepted that Art 352 could be used to create a new tax, the Article expressly requires unanimity and also requires that the necessary powers cannot be found elsewhere in the Treaties.  Further, the general power may only be used to attain one of the objectives set out in the Treaties.  There are no other powers in the current Treaties to permit the levying of a tax such as a Financial Transaction Tax.

The Treasury - London
Tax policy is, of course, a symbol of national sovereignty and part of a country's overall economic policy.  In the EU, responsibility for tax policy lies with the Member States though the EU has a range of powers related to matters such as harmonisation of certain taxes - (see Title VII TFEU Art 113).  Gerhard Schroeder said - "The times of individual national efforts regarding... tax polices are definitely over'  and there is no doubt that the Member States could create a new tax by agreement as they did in 1970 with VAT.  The Member States could also agree on a change to the Treaties to give the EU a taxation power but the fact remains that national governments continue to assiduously guard their tax policies.  Any agreement within the EU to impose a financial services tax (FTT) would, as things stand, appear to have to be unanimous and agreement from London is, to say the least, unlikely to be forthcoming.

It is said that the European Commission is drawing up proposals for a FTT which would be opposed by the UK - Independent 28th September 2011.    Today (16th November) the introduction of such a tax within the EU has been described as economic suicide - see Public Service.    On 16th September, The Economist took a look at the idea of a FTT - "Shooting the bankers - or themselves?"  To politicians such as Herr Kauder, the UK government will undoubtedly respond - "Nein und abermals nein."

The Europa website carries extensive information about the EU and taxation.

As ever, considered views are welcome - particularly if you disagree.


The folly of a Financial Transactions Tax - Atlantic Sentinel 30th September 2011
Osborne to miss UK deficit targets - The Guardian 16th Novermber
Youth unemployment hits 1 million - The Guardian 16th November
Pain - but no gain.  Independent 17th November

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