From the TUC

Robin Hood Tax opponents clutch at legal straw

13 Sep 2013, by in International

It’s been quite a week for the opponents of the EU Financial Transactions Tax (FTT). In yet another – increasingly desperate – attempt to pronounce the death of the proposal, a legal opinion from one part of the EU structure, dealing with one element of the FTT is pronounced sufficient to destroy the proposal. Well, as Joe Hill would have said “I ain’t dead!”

The fact that this story has got so much uncritical (indeed, staggeringly poorly informed) coverage in so many respectable journals is itself part of the story. The well-funded and staff-rich finance sector PR industry has yet again been in overdrive to blow up a minor story into front page news. Finance sector’s bigwigs should beware of deluding themselves into believing they have won when they haven’t. And more importantly than that, FTT supporters should on no account believe the exaggerations of our opponents, although our rebuttal got little coverage (thanks, Heather!)

So what’s really happened? The legal service of the EU Council of Finance Ministers (just one small part of the EU legal service) has produced a legal opinion (not tested and not binding) that says one element of the proposed FTT (the residence principle, more below) may be contrary to the legal principles of the EU and therefore may have to be changed. Other parts of the EU legal service disagree, the European Commission disagrees, and the German government – for one – disagrees. I suspect that wouldn’t have made so many headlines…

First, what’s the substance of the argument? The proposed FTT rests on several principles defining which transactions would be subject to the tax. The residence principle, which this legal opinion is about (it’s quite explicit that “Other criteria to determine the applicability of the tax regime, be they already present in the proposal or otherwise conceivable, are not the subject of the discussion in this opinion”) says that the tax is paid whenever one of the seller or buyer is based in a country implementing the tax. It’s one of the measures designed to prevent people from moving to avoid the tax, but it’s not the only one. The issuance principle is the one which underpins the UK Stamp Duty, for example, which says that if the financial product being sold is registered in a country implementing the tax, then the sale is taxable.

The Robin Hood Tax campaign has always favoured the issuance principle, because it’s been shown to have worked (40% of Stamp Duty is paid by buyers and sellers based outside the UK), and it prevents transactions moving, rather than the parties to those transactions – so it’s more like VAT. We had to fight to get the European Commission to include the issuance principle in the FTT proposal, and it looks like that was a smart move.

Second, what’s the status of the legal opinion? Well the clue is partly in the name. It’s an opinion, not a fact – lawyers are like that, they can produce many different opinions, which is why the actual decisions are left to courts, rather than lawyers. Until tested in the courts, this is just a view, and it’s a view that the Commission’s own legal service doesn’t agree with. It’s the view of the lawyers who work exclusively for the EU’s Finance Ministers and it rather reflects the scepticism of finance ministries.

Third, what will happen as a result? Well, er, it looks like nothing. Both the EU Tax Commissioner, Algirdas Semeta, and the government most committed to the FTT, Germany, appear to have dismissed the legal opinion because of “second…” above. Semeta tweeted that “FTT is legally sound and fully complies with EU treaties and international law.” But even if the legal opinion was found to be correct, the FTT proposal would simply have to be amended slightly to stress the issuance principle instead, and it could be implemented as planned.

But, fourth, what does this tell us about the way that the FTT’s opponents operate, and about what we as supporters have to do in response? Throughout the campaign for an FTT, the finance sector corporate PR lobby has missed no opportunity to pronounce the tax dead, finished, about to be scrapped, or – a subtle one, this, better replaced by something that would take far less money in tax from the admittedly greedy bankers. The German government has reportedly abandoned its support for the FTT on at least two dozen occasions over the past three years, and on none of those occasions has it been remotely true. Should journalists reporting on this be a little more sceptical, a little more willing to ask both sides of the debate for their opinion? Yes, indubitably. (As a further footnote, you have to wonder how this secret legal opinion was so quickly in the hands of the media – will there be a Snowden-style witch-hunt for the leaker? No, there won’t.)

Those of us who want a Robin Hood Tax (presciently reaffirmed by the TUC this week in a motion written weeks ago which pledged “continued support for the introduction of a financial transactions – or Robin Hood – tax, in the face of sustained finance sector lobbying against this”), the lesson is that we need to step up the campaign – especially in the media – to get the case put for democratic governments to decide who pays what tax, rather than the spin doctors of wealthy bankers.

5 Responses to Robin Hood Tax opponents clutch at legal straw

  1. Door Jelsma
    Sep 14th 2013, 4:08 pm

    My guess is too that the introduction of the FTT in Europe will not be halted anymore, but the financial lobbyists will make every attempt to create loosening and gaps in the legislation. It still worries me that the Dutch and British government do not support it, while they have the major financial industries. What also worries me is that the Dutch government lobbied to keep the pension funds out of it. While using sentimental reasons this is a very sneaky loophole around the tax, since there is a huge amount of money in the Dutch pension funds, 1000 billion euro’s! If we don’t pay attention suddenly all the ensurence companies and banks will have their capital stalled in pension funds…

  2. Marc Daniels
    Sep 14th 2013, 7:32 pm

    It’s more complicated than that. The residence principle is critical as otherwise you can’t tax derivatives – they are not “issued” anywhere. The opinion can’t be ignored, as Germany and the others would not be so stupid as to enact a tax when there’s a significant possibility the European Courts will later find it illegal, and require them to repay the tax collected plus interest.

    Finally, if you and others want to convince people that the opinion is wrong then you will have to engage with the arguments in it, and not merely rubbish it. Have you even read the document? The discrimination argument seems quite weak but the rest of it cannot be easily dismissed.

  3. Owen Tudor

    Owen Tudor
    Sep 14th 2013, 7:42 pm

    Marc, thanks for the comment. I have indeed read the opinion, but I’ll leave the detailed rebuttal to the Commission’s legal service. Actually, I wouldn’t totally dismiss their disagreement with the residence principle, although I agree that the discrimination argument seems weak, and I can think of some ways round their arguments on the residence principle. You’ll note that I explicitly did not rubbish the substance of their argument.

    However, I think you’re wrong on the issuance principle not covering derivatives (issuance may be a slightly misleading word – what we mean is where things are legally registered, not where they are actually issued.) If you can’t prove your legal entitlement to the thing you’re buying, you can’t prove you own it, and therefore you could just lose your money at random. That, given electronic exchanges, is the way you ‘fix’ a financial instrument and make it taxable.

  4. Marc Daniels
    Sep 14th 2013, 7:59 pm

    Say I enter into a derivative, pure speculation, on movements in currency prices, and I am in the US and my counterparty is in Germany. The arrangement is US law, so providing entitlement to it isn’t a problem. The issuance principle can’t possibly tax such a thing, which is why the designers of the tax felt a residence principle was needed.

    As you say, it’s not a problem if you only want a pan-European version of stamp duty. But the FTT was always rather more than that… not least because it was trying to raise ten times more.

  5. Owen Tudor

    Owen Tudor
    Sep 14th 2013, 8:02 pm

    I don’t disagree (note that doesn’t mean I agree, either!) about your example or your conclusion. And certainly, we’ve always agreed that if the FTT was truly global, or included the US, then it would raise much more. But what it would raise isn’t peanuts either way.