Europe’s “Robin-Hood Tax”: Is it Really Just Modern-Day Taxation Without Representation?

In Europe, an effort to raise tax revenue to help cure the cost of the debt crisis has hit a significant turning point after top legal advisors to the European Commission have expressed their doubts as about the legal viability of the so-called “financial transaction tax,” referred to by the People as the “Robin-Hood Tax.” If passed, the tax stands to impose a levy  on all financial transactions (securities, bonds, and other financial transactions) that are conducted by corporations based in the EuroZone. The plan is supported by the likes of France, Germany, Spain, and Italy, and it is estimated that the new transactions tax stands to raise approximately $45 billion per year, which is desperately needed help bring Europe out of its well-publisized debt crisis.  The European people broadly support the proposed tax, so what is all the fuss about?

As mentioned, the legal advisors to the European Commission have expressed their concerns about the legal viability of the plan. In their report, published on Tuesday, September 10, 2013, the advisors stated that the proposed tax “exceeds member states’ jurisdiction for taxation” and “is discriminatory and likely to lead to distortion of competition.”  Primarily, the questions about jurisdiction arise out of the proposed tax’s ability to levy even those transactions that are executed abroad, that is outside the EuroZone. In essence then, the EU stands to tax corporations and their transactions despite such transactions having only an attenuated link to the EuroZone. To my mind, this has a slightly familiar ring to it.

By most accounts, the catalyst for the American Revolution was the colonial population’s infuriation with the British Empire’s “taxation without representation.”  It was said that for the Brits to levy taxes against the colonists was unfair so long as the colonists’ interests were not represented in the British Parliament. The rest is history.

Now, it seems that in this modern, globalized world where corporations are people (See generally Citizens United v. Federal Election Com’n, 558 U.S. 310 (2010)) that a tax such as this transactions tax proposed by the EU has the potential to be viewed by corporations as “taxation without representation.” After all, many of the banks and corporations that would be within the reach of the proposed tax are operating outside of the EuroZone. But is it really the same thing?

The financial transaction tax stands to impose a levy of up to one tenth of one percent on all qualifying transactions. Qualifying transactions include the buying and selling of securities, bonds, futures contracts, etc. by corporations that are based in the EuroZone. Here’s the rub, though: the tax will extend to transactions that do not take place within the EuroZone, as well. That means that as long as the company that buys or sells is based in the EuroZone (i.e. incorporated there) the tax will be imposed, regardless of whether the transaction itself takes place in New York, Hong Kong, Singapore, Tokyo, or elsewhere.

Unsurprisingly, business leaders–most notably from the U.S. and England–have come out swinging, expressing grave concerns over the negative  implications that such a tax could have on the global economy. First and foremost, those in opposition have agreed with the European Commission’s legal advisors that the tax “exceeds [EU] member states’ jurisdiction…,” but the opposition has also cited their concerns over the potential for the transaction tax to cause global economic stagnation. Leo Ringer, the head of the lobby’s financial services unit at The Confederation of British Industry, a business lobbying group based in London, stated that the proposed tax ”would have damaging implications for growth, jobs and investment beyond the member states involved.” He may be justified.

Consider this this: A European corporation will be taxed every time it trades stock on the NYSE, does that fact make it more or less likely that the European Corporation will continue to make substantial investments in America? Or what about a Chinese Bank that has had great success in Asia and wants to branch out by incorporating subsidiary banks in Europe? Does the EU’s financial transaction tax make that Chinese Bank’s decision to venture into the European market more or less likely? Perhaps in the end, the sluggish European economy needs the estimated $45 billion that this tax is scheduled to bring in so badly in order to boost its own economy that considering the slight stagnation that might result in the global economy is insignificant. One thing is for sure, the European People who have been feeling the pinch of austerity measures and the debt crisis are willing to vote Yea!

As mentioned above, the middle-class people in Europe have re-named the officially-named financial transactions tax the “Robin Hood Tax.” It goes without saying that many people are well aware that this tax will take from the rich and give to the poor. And, in light of the way that European banks–like banks around the world-have conducted themselves in the past, the European People are likely justified in their desire to see this tax implemented. In fact, rallies in support of the “Robbin Hood Tax” have popped up all over Europe, especially in placed like Ireland, Spain, Italy, and Greece. But, the question remains: is this tax really just a modern-day form of taxation without representation?

Obviously, businesses are concerned. Let’s face it, no business likes to be taxed. But, is there really something to this jurisdictional argument that has been presented by both the European Commission’s legal team and business leaders? Would a European tax on financial transactions that take place out of the EuroZone be fair? Or, is this just a modern day case of taxation without representation?


Article Source: Financial Times; New York Times

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One comment

  1. Ultimately, I think this tax will be entirely counter-productive and will not bring about its desired results. A transactions tax may provide a boost to government revenue in the short run, but it will most likely hamper long term economic growth to a far greater degree. All that these taxes will likely accomplish will be to deter financial institutions from investing in the Euro Zone. We live in a global economy, with global investment outlets, and if transactions costs (i.e. transaction taxes) become too high, investors will simply take their money elsewhere. In the long-term, a shrinkage in investment will reduce economic activity in Europe, and if that happens, it is ultimately European job seekers that will suffer from this tax.

    I believe Nigel Farage of UKIP (perhaps the only European politician that I respect), summed up this taxation best when he referred to it as “kamikaze economics.” His remarks to the European Parliament can be found in this video: []. What he meant by this is that rises in taxation rates do not always lead to rises in tax revenue. If investors feel that tax rates are too high, they take their money elsewhere. As investment falls, the tax-base shrinks, and with it gross tax revenue. A rise in tax rates does not automatically mean a rise in tax revenue if the tax-base shrinks fast enough.

    I must take argument with your characterization that “[i]t goes without saying that many people are well aware that this tax will take from the rich and give to the poor.” That is not necessarily true. This tax will take from the rich and give to the government. There is a difference, because I do not believe that the EU’s interests and the interests of the poor are always aligned. I suspect this “Robin Hood” spin is no more than a cheap ploy to help gain support for the tax, even if it provides little to no benefit to the poor.

    This new tax comes as no surprise to me, and I cannot stress how poor of an investment choice the Euro Zone has become. But hey, at least they are not resorting to what Cyprus did – stealing money (taxing) directly from peoples bank accounts. But many parts of Europe are not much economically healthier than Cyprus, so perhaps its only a matter of time. I for one, will not be opening a bank account in Europe anytime soon.

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