EU institutions at war on 'illegal' finance tax

In the leaked document, seen by Reuters and Financial Times, the lawyers serving EU member states say the proposed financial transactions tax "exceeds member states' jurisdiction for taxation under the norms of international customary law as they are understood by the Union."

The 14-page legal opinion concludes that the proposal is "not compatible" with EU law "as it infringes upon the taxing competences of non-participating member states" and is "discriminatory and likely to lead to distortion of competition."

The EU commission tabled a proposal earlier this year after Austria, Belgium, Estonia, France, Germany, Greece, Slovakia, Slovenia and Spain said they want to go ahead in the absence of a deal among all 28 member states.

"We strongly disagree with the Council legal service's opinion on the FTT," Emer Traynor, spokeswoman for the commissioner in charge of taxation, told this website.

She said the legal opinion only deals with parts of the proposal and that the commission maintains the FTT is "legally sound and fully in line with the EU treaties and international tax law."

The commission's own legal service is now set to "analyse in further detail" the legal opinion of its neighbouring institution.

"We expect the member states not just to take on the Council legal service's views, but to assess them critically against the commission's robust legal analysis of this proposal," Traynor added.

Meanwhile, in Berlin, the finance ministry said Germany is not backing down.

"The German government is pushing for a swift implementation of the FTT. We want the financial sector to share the cost of the financial crisis in an appropriate manner. Nothing has changed on that," Bertrand Benoit, spokesman for finance minister Wolfgang Schaeuble, said.

"Legal concerns have to be clarified as soon as possible and eliminated," he noted.

The FTT, also known as the "Robin Hood" or "Tobin" tax, is designed to skim money from the financial sector and to discourage speculative and high-risk trades.

It has a long history of setbacks and of confusion on how to use the money it generates, whether for humanitarian aid, filling state coffers or as a contribution to the EU budget.

The current proposal aims at making banks pay about €35 billion a year.

Britain, with its large financial sector, is opposing the FTT and has challenged the legality of its provision, which allows, for instance, British banks to be taxed if they trade with French or German banks based in London.