While effectively ruling out the inclusion of the vast forex market
from a transaction tax proposal now on the table, it leaves the door
open for the sector to be included later on.
Legal opinions from the bloc's lawyers in Brussels have heft and a
previous one last September which questioned the legality of one
aspect of the planned tax triggered a long delay and a fundamental
The tax is aimed at recouping "a fair and substantial contribution"
from banks after the public money they received in the 2007-09
Eleven countries from the EU's single currency area, led by Germany
and France, are trying to reach an outline deal on a transaction tax
Attempts to introduce a global or pan-EU tax failed due to
opposition from countries like the United States, Sweden and
Britain, the latter challenging the plan in the bloc's top court.
The legal opinion, dated 14 March, says that, in principle,
including spot currency transactions in a tax "would not necessarily
be incompatible with the free movement of capital".
Adding foreign exchange transactions to the existing proposal,
however, would exceed the powers of member states to amend it, the
legal opinion added.
A tax on foreign exchange would take the levy back to its
theoretical roots — the levy on currency trades floated by economist
James Tobin in the 1970s to smooth out market volatility, but it was
The European tax proposal was written by the bloc's executive
European Commission which left out foreign exchange from the list of
transactions to be taxed, such as those in stocks, bonds and
The EU executive believed the bloc's treaty prohibits curbs on the
movement of capital such as for payments for goods and services.
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The opinion said this reasoning overlooks the case of including spot
currency transactions that are not linked to any underlying
transaction, meaning speculative trades.
The legal opinion says because spot currency transactions are not
"financial instruments" under EU securities law, they cannot be
added to the current proposal which only mentions taxing legally
defined financial instruments.
"In this respect, the inclusion of spot currency transactions in the
scope of the proposal would... expand to a wide range of
transactions that are not related to financial markets," the opinion
Spot currency transactions mainly concern day-to-day transactions of
the real economy that are not related to the recent financial
crisis, the opinion added.
The forex market is under intense regulatory scrutiny following
allegations that banks have rigged benchmarks adding to public anger
over banks which have been fined for manipulating the LIBOR interest
(Editing by Keiron Henderson)
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