WASHINGTON (Reuters) - Britain has challenged in court a plan by 11 euro zone countries to set up a financial transaction tax to help pay for the costs of the financial crisis.
Britain was concerned that the planned tax would affect transactions carried out beyond the borders of countries that sign up for it, Chancellor George Osborne said on Friday.
“We’re not against financial transaction taxes in principle ... but we are concerned about the extra-territorial aspects of the (European) Commission’s proposal,” he said on the sidelines of meetings of finance leaders at the International Monetary Fund.
The British government filed the challenge at the European Court of Justice on Thursday, the deadline for challenging the Commission’s proposal, a Treasury official said.
U.S. Treasury Secretary Jack Lew has voiced opposition to the planned tax, which would affect banks on Wall Street and other financial centres around the world.
The 11 euro zone countries intend to introduce the tax on stock, bond and derivatives transactions next January, raising up to 35 billion euros a year.
There are provisions to ensure the levy is applied no matter where securities from the 11 states are traded, though it is unclear how and by whom the tax would be collected, especially in non-participating countries.
Brussels said it was confident the plan was on sound legal ground. “It was based on careful analysis to ensure that all the conditions for enhanced cooperation, set out in the (European) Treaties, were met,” said Algirdas Semeta, the European commissioner in charge of tax policy.
Under the EU’s rules, enhanced cooperation requires a minimum of nine countries to cooperate on legislation using a process, as long as a majority of the EU’s 27 countries give their permission.
Germany has argued that banks, hedge funds and high-frequency traders should pay for a financial crisis that began in mid-2007 and spread across the world, forcing euro zone countries to bail out peers such as Portugal and Greece.
The British Treasury official said the government hoped it could resolve its differences over the planned tax through negotiation.
He said Thursday’s challenge kept London’s legal options open while the transaction tax takes clearer shape in the year ahead.
A pan-EU proposal for the tax failed due to opposition from Britain, home to the City of London and Europe’s largest financial services industry, as well as other member states including Sweden.
Parliamentarians have criticized the government and the financial sector for not doing enough to stop the tax, saying Britain should go to court to halt the plans.
A trade group representing banks, brokerages and other market-related sectors slammed the planned change.
“This is a tax that will damage markets beyond the 11 states that are considering it, across Europe and also internationally,” said Simon Lewis, chief executive, the Association for Financial Markets in Europe.
“It will act as a brake on economic recovery by increasing costs to investors.”
Reporting by William Schomberg; Editing by Andrea Ricci and Chizu Nomiyama