On Thursday, the European Commission released details on its controversial tax on financial transactions. The tax will impose a 0.1 percent levy on most equity and debt transactions starting in early 2014, according to the Commission.
The tax, commonly called the Tobin tax after economist James Tobin who first proposed the idea in the 1970s, faced a difficult passage with some European sovereigns opposing the measure when it was first proposed in 2011.
It will now be enforced in 11 countries through “enhanced cooperation” – a term describing nine or more EU member states deciding to move ahead with an initiative proposed by the Commission once it proves too difficult to reach unanimous agreement in all member states.
The 11 countries participating are: France, Germany, Belgium, Austria, Slovenia, Portugal, Greece, Slovakia, Italy, Spain and Estonia.
The tax however is still being challenged by critics who question its legality, arguing that the tax's application on transactions passing through one of the 11 participating countries is a territorial overreach.
“They're not just taxing their own – they're taxing investors and financial institutions across the EU and beyond. There is a serious question whether this kind of extra-territorial taxation is consistent with EU treaties,” said Clifford Chance tax partner, Dan Neidle, in an emailed statement.
Neidle added that EU rules usually require unanimity for any pan-EU taxation measure whereas these 11 have forgone that principal through enhanced cooperation.
For private equity fund managers the fear is that if passed, “the tax would… hit transactions by private equity fund managers when purchasing or selling shares, bonds or options in portfolio companies”, said Mark Stapleton, of law firm Dechert, when the tax was originally announced.