The FTT proposal under the enhanced cooperation procedure

This research examines the controversial proposal in February 2014 by the European Commission for a Council Directive to implement a financial transaction tax (FTT) through the enhanced cooperation procedure. This procedure allows a sub-group of Member States, subject to the fulfilment of some conditions, to introduce measures that only bind the participating Member States and has been pursued following the Commission’s inability to garner the necessary support of all Member States for its original proposal for an FTT of September 2011.

The research analyses the proposal and the accompanying impact assessment, focusing on the newly-added features of the proposed tax and its potential impact on both participating and non- participating Member States. It concludes, amongst other things, that there will be both positive and negative impacts on non-participating Member States, such as the UK, but that the evidence provided in support of the proposal is unsatisfactory in a number of respects.

The research also examines the proposal from the perspective of public international law. It discusses the controversial extraterritorial reach of the proposed tax as a result of the “contagion effect” (following which an entity established outside participating Member States is subject to the tax if its counterparty is established in a participating Member State) and the “issuance principle” (following which transactions between entities established outside participating Member States are subject to the tax if they involve instruments issued in participating Member States). It argues that doubts exist with respect to the compatibility of the “contagion effect” and the “issuance principle” with internationally-recognised legal principles.

The research also considers the legal requirements imposed by the EU Treaties on the use of the enhanced cooperation procedure. Whilst raising some concerns in relation to the proposal’s  compliance with these requirements, the research concludes that the outcomes of any potential political or judicial challenge are uncertain.

The Financial Transaction Tax proposal under the enhanced cooperation procedure: legal and practical considerations, Joachim Englisch, John Vella and Anzhela Yevgenyeva: British Tax Review, 2, pp.223-259