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Trichet Slams EU Financial Tax

July 2011 - EU & Competition. Legal Developments by Hassans.

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During a recent meeting of the European parliament?s economic and monetary affairs committee in Brussels, President of the European Central Bank (ECB) Jean-Claude Trichet vehemently rejected the idea of introducing a financial transactions tax purely at European level.

Defending his remarks, Trichet warned that proceeding unilaterally and imposing a tax in Europe and not elsewhere would merely serve to penalize the European Union (EU), leading to a significant loss of business abroad.

Underlining the need for caution, Trichet explained that the financial industry, which admittedly needs to be regulated and controlled, remains an important industry for all regions of the world. Consequently, unless the plans were adopted globally, EU financial centres would lose out, Trichet added, warning that even a small tax could serve to severely disadvantage European financial centres. Even a global tax might be counter-productive, he posited.

Trichet?s comments came just a day after European Commission President Jose Manuel Barroso unveiled details of the Commission?s plans to introduce a European financial transactions and sales tax to finance the EU?s 2014-2020 multi-annual budget. Imposing a levy on all financial transactions in Europe is expected to generate in the region of EUR30bn (USD43bn) a year.

Despite strong reservations from EU member states, the Commission is determined to press ahead with its plans to finance the majority of its budget via the introduction of new EU taxes imposed across all 27 member states. Up until now, around three quarters of the EU?s budget has been derived from direct payments from member states, while the remainder has been yielded by the EU?s own means, notably from customs duties levied at EU borders. In return for agreement on the levies, contributions from member states would be reduced to around a third.

Alluding to the proposed future financial framework as ?an innovative budget? with ?very concrete priorities? and ?a very important goal?, namely boosting energy efficiency, combating climate change and promoting social targets, Barroso emphasized that the Commission is proposing a new system of resources based on a tax on the financial sector and on existing VAT. While conceding that the framework is an ?ambitious budget?, Barroso stressed that it is also a ?responsible budget?.

Yet the Commission?s plans are far from a fait accompli, particularly in view of continuing opposition from key member states and given the fact that any new EU-wide tax requires the approval of all 27 members.

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