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Financial transactions tax faces criticism

A tax on transactions made by banks and financial institutions in 11 European Union (EU) countries would be 'illegal', according to EU lawyers.

The financial transactions tax (FTT) will apply to the financial sector on transactions involving shares, currencies and bonds.

EU lawyers said the tax hinders the free movement of capital. Although only a legal opinion, this could cause setbacks for the proposed tax.

Also known as the Robin Hood tax or Tobin tax, the FTT aims to:

  • discourage riskier trading in the wake of recent financial crises 
  • provide a fairer contribution to tax revenues 
  • raise money towards tackling poverty and climate change.

The FTT is to be adopted in 11 EU countries - Germany, France, Italy, Spain, Belgium, Austria, Portugal, Greece, Slovenia, Slovakia and Estonia - with it estimated to raise around 35 billion euro per year.

Although the UK will not adopt the tax, there are fears it could affect UK trading with businesses based abroad.

Speaking earlier this year, former Governor of the Bank of England, Sir Mervyn King, said he had encountered widespread scepticism about the tax from within the banking community.