LONDON — A European tax on financial transactions would fall disproportionately on London firms, a business lobbying group said Thursday, highlighting growing tensions between Britain and its continental allies over banking regulation.
The British government started legal action last month to try to block the European Union’s so-called Robin Hood tax on the grounds that it could ensnare banks from countries that do not adopt the law, including Britain and even the United States. At issue is a clause in the proposal under which the tax would be applied to trades by banks from European countries that sign on to the law, like Germany or France, regardless of where the transaction actually takes place.
The British Treasury says that, for example, were an American bank to trade a British government bond with the London branch of a German bank, then both the U.S. and German banks could be liable for the tax.
A report published Thursday by the London Chamber of Commerce and Industry identified the tax as a problem area of European Union policy, along with employment regulation.
In a survey of 130 London businesses of different sizes and from various sectors, 52 percent said they believed that it was not desirable for Britain to remain in the union under the current terms. But 60 percent favored staying if powers could be transferred from Brussels back to national governments. That is broadly the policy preferred by Prime Minister David Cameron, who has promised to hold a referendum on European Union membership.
The report Thursday said the union’s drive to strengthen the regulation of financial services after the crash had produced “legislative proposals that are particularly damaging for London’s financial services industry.”
The proposed transaction tax “would affect London disproportionally as it is a major hub for euro trading,” it added.
The tax has joined a growing list of financial issues dividing the Continent and the British government. Britain says the country needs a looser relationship with the bloc if it is to stay a member.
Under the proposal, a tax would be imposed of at least one-tenth of 1 percent of the value of all transactions between financial institutions. Derivatives contracts would be taxed at the rate of one-hundredth of 1 percent. The European Commission has estimated the tax could raise 30 billion euros to 35 billion euros, or $39 billion to $46 billion, a year.
Britain refused to sign on to the proposal. But 11 other European Union nations agreed to go ahead: France, Germany, Belgium, Austria, Slovenia, Portugal, Greece, Slovakia, Italy, Spain and Estonia. Transactions would be taxed if there were “an established economic link” between a financial institution and the group of 11 nations — the so-called Financial Transaction Tax-zone, or F.T.T. That would include branches of banks operating outside the zone.
Last month, the British government decided to challenge the tax in Europe’s highest court, the European Court of Justice, even though no detailed agreement was in place among those countries that wanted to implement it.
Emer Traynor, spokeswoman for the European commissioner for taxation, Algirdas Semeta, said she was “fully confident that the F.T.T. as proposed is legally robust. It is fully in line with international tax laws and broad principles already widely used.”
The tax is just one of several disputes between Britain and the European Union about financial services. Earlier this year Britain found itself isolated over moves to cap bankers’ bonuses. Britain has a separate legal challenge against the European Central Bank over its plans to prevent some euro-denominated securities from being cleared outside the 17 European Union countries that share the euro — in that way excluding Britain, which has kept its own currency.
The British government is also resisting new rules to rehabilitate troubled banks, which would mean creating national funds to pay for bank resolution costs. And a long-standing plan to harmonize the base on which corporate tax is levied in Europe is also a point of contention between Britain and Brussels.
Tension with Brussels has grown during an economic crisis seen by many continental Europeans as the product of freewheeling financial services. The result was pressure for tougher regulation and, in the case of the Robin Hood tax, measures to recoup cash from the industry. The euro zone’s debt crisis is also forcing the 17 European Union countries that use the currency to integrate more closely in areas like banking, raising issues for member states outside the monetary union.
“On the one hand it shows the dangers of disengaging from the E.U.,” said Philip Whyte, senior research fellow at the Center for European Reform, a research institute in London, who argues that Britain feels increasingly beleaguered on issues related to financial services.
“At the same time, it gives a lot of ammunition to those saying that the E.U. is a hostile force to Britain. ‘Let’s get out and develop closer links with faster-developing parts of the world economy.’ ”
Article source: http://www.nytimes.com/2013/05/03/business/global/03iht-eulondon03.html?partner=rss&emc=rss
