Global FS Tax Newsflash: EU FTT – Will the Commission’s proposal survive?

There continues to be much press coverage around the EU Financial Transaction Tax (EU FTT). There has been speculation that the draft Directive issued earlier this year will be considerably diluted and that the eleven countries within the Enhanced Cooperation Procedure are struggling to reach consensus. Notably, there was no mention of the EU FTT as part of the Irish Presidency report to the ECOFIN at the end of last week and official commentary has been limited. EU Tax Commissioner Semeta has stated that such news reports do not reflect what is currently going on in the Council. So what is going on in the Council and where do the negotiations stand? In this newsflash we provide an update on what continues to be a highly political topic.

Shortly after the Commission presented its draft Directive to the Council on 14 February 2013 under the EU’s Enhanced Cooperation Procedure, the national fiscal attachés of the EU-27 Member States started a series of technical discussions in the Council Working Party on Tax Questions - Indirect Taxation (FTT) (the “Working Party”) under the Irish EU Presidency. In these discussions the fiscal attachés go through the articles of the draft Directive in order and propose amendments. The attachés can also ask the Commission, present throughout as the proposer of the EU legal act, to clarify the articles and their impact further.

Importantly, in parallel to this EU-27 process the 11 Participating Member States (“ECP-11”) in the Enhanced Cooperation Procedure also met several times informally from February to mid-April 2013.

This is the first time the Enhanced Cooperation Procedure has been used in the area of EU taxation policy. It is very much ‘learning by doing’ for everyone involved in the process. This has led to the unusual situation whereby the ECP-11 are required to reach a compromise on the EU FTT, yet the other non-participating EU-16 also sit at the Council negotiating table despite having no voting powers and no intention of implementing this piece of EU law. One of the non-participating Member States, the UK, is present at the discussions having recently filed a complaint with the EU’s courts that the very procedure being used is illegal (please refer to our FS Newsflash on this topic released on 24 April 2013). This makes the EU FTT a very complex political dossier with multiple competing interests.

During the second Working Party held on 16 April 2013, the ECP-11 reportedly disagreed on even very basic points such as what they wanted to achieve with the EU FTT, who they wanted to tax, what the FTT should look like and how it should be implemented and collected. A meeting document leaked to the press revealed that some of the ECP-11 suddenly had significant concerns about the proposal’s impact. Yet the ECP-11 countries cannot simply withdraw from the process and must take part in the final vote in the ECOFIN Council. It is worth remembering that the Enhanced Cooperation Procedure requires at least 9 Member States to vote in favour of the final proposal in order for the proposal to pass into law.