Luxembourg Backs Challenge to Financial Transaction Tax

As Europe’s largest financial centre, London has the most to lose if finance firms move their trading operations to parts of the world free from such taxes.

“We are very sympathetic to the stance of the UK … We will certainly bring our support to the case that has been started in the European Court of Justice,” Frieden said during a question and answer session at the City Week banking conference.

The British government last week filed a deadline day challenge to the tax at the European Court of Justice.

A successful legal case against the tax would hinder its application outside those countries that sign up to it and could significantly cut the amount of revenue it brings in.

As the biggest trading centre in the EU, Britain would probably end up collecting much of the tax even though it won’t be applying it.

Germany has argued that banks, hedge funds and high-frequency traders should pay for a financial crisis that began in mid-2007 and exposed sovereign debt problems that forced euro zone countries to bail out peers such as Portugal and Greece.

Frieden told Reuters shortly after he made the comments that Luxembourg was now looking at whether to formally add its signature to the UK’s challenge, rather than just voice support.

“This is something that I have to examine. We are now in a political process and then I have to look into the details,” he said.

Speaking at the same conference, Thomas Donohue, head of the U.S. Chamber of Commerce, also stressed his country’s objections to the plans.

“European leaders are moving forward with proposals that are non-starters for the United States, for example the financial transaction tax and cap on bonuses for U.S. employees.”

“We will not allow the FTT to happen and we are going to be very careful how compensation is capped, regulated and dealt with like price control,” he said.

(Reporting by Marc Jones; Editing by Toby Chopra/Ruth Pitchford)

Article source: http://www.nytimes.com/reuters/2013/04/22/business/22reuters-banking-tax-luxembourg-fin-min.html?partner=rss&emc=rss