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UK loses first round of legal fight against EU transaction tax

The UK has failed in its first attempt to block an EU-wide transaction tax, after a court in Luxembourg ruled that the UK's objections to the tax were against a 'future' proposal that has yet to be agreed, reports the Financial Times.

EU member states including France, Germany, Italy and Spain are bidding to levy a small financial transaction tax in order to raise billions from EU financial transactions to help fund future economic crises.

The UK opposes such tax, principally as the majority of EU financial business is conducted from the City of London, and the UK believes imposing such a tax will make Europe, and London, less competitive in global financial markets.

The UK is hoping to block the tax, and began its bid to succeed with a legal challenge at an EU court in Luxembourg.

However, UK hopes of an early victory have been scuppered, after the European court ruled that the UK's argument was against a 'future tax' that was yet to be finalised.

The judge in the case said: "The two arguments put forward by the UK are directed at elements of a potential FTT and not at the authorisation to establish enhanced co-operation, and consequently those arguments must be rejected and the action must be dismissed."

For its part the UK had previously acknowledged that the legal challenge was premature, and explained to the court that it was designed to lodge an early indicator of opposition, to allow it to sue later on.

The main objection Britain has at present is to the notion that other EU countries can negotiate on the introduction of a policy which Britain itself fundamentally opposes and intends to veto. The other European countries are negotiating using a relatively new mechanism known as 'enhanced cooperation'.

Enhanced cooperation

Enhanced cooperation was first introduced by the Amsterdam Treaty, and essentially allows a minority of EU countries the opportunity to negotiate additional agreements within the EU framework without requiring the full agreement of all EU member states.

The mechanism was originally designed to allow greater cooperation between EU member states on matters such as judicial cooperation and criminal law. The mechanism allows some countries to pursue far greater EU integration, allowing others to 'opt out' of negotiations.

The use of enhanced cooperation has since been expanded to include cooperation on foreign policy, divorce law, patent law and now, the Financial Transaction Tax.

Objection overruled

The UK argued that the other EU nations should not be permitted to negotiate on a matter such as taxation, where the UK holds a veto, because doing so could harm the UK interest in the long term.

The Luxembourg ruling essentially permits such negotiations to occur; however, it leaves the door open for the UK to veto or block any future agreed tax.