Extra territoriality – The direction of Tax?

Europe’s top court has rejected the UK’s challenge to the introduction of an EU financial transactions tax (FTT), which ministers have said will damage British firms.

The European Court of Justice (ECJ) said the UK could not block the levy on trades on the grounds that it would affect British banks.

The FTT will be adopted by 11 EU states, but not by Britain.

The UK said it was prepared to take further legal action.” BBC News.

The UK has lost its challenge to FTT in the ECJ. Aside from the politics ahead of European elections (will this do anything other than encourage euro sceptic parties? isn’t tax a national sovereignty any more?) the more worrying aspect is extraterritoriality in taxation. At what point did extraterritoriality become a principle of taxing rights within the EU and when was this agreed?

Under the proposal, tax will be levied on a transaction one part of which is carried out in a country which has not introduced the FTT (like Sweden) and one which has. This extension of taxing rights by the 11 countries in favour of the FTT is a dangerous  precedent and goes against the principles under which international tax has operated for a long time.

The danger with letting the cat out of the bag is always that the cat will run around and come back to bite you. Other countries, particularly outside the OECD will look at this proposal and think “Are there any ways we can assert taxing rights on transactions or activities which have some connection with our country?”

Tax policy needs to be thought about strategically, unfortunately this all looks like an attempt at short term tactical expediency with no thought to the strategic outcome.

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