In a letter to E.U. Tax Commissioner Algirdas Semeta and Commissioner for the Internal Market Michel Barnier, securities and business groups warned on the extraterritorial impact in the United States and other countries of the European Commission’s draft Council Directive implementing enhanced cooperation in the area of a financial transaction tax. SIFMA, the Investment Company Institute, the Chamber of Commerce and the Financial Services Roundtable noted that the proposed Directive has substantial extraterritorial impact and introduces both a residency and issuance test for the taxation of financial transactions. The groups described these tests as ``novel and unilateral theories’’ of tax jurisdiction that are both unprecedented and inconsistent with existing norms of international tax law and long-standing treaty commitments. Indeed, the signatories emphasized, there is a high risk that their adoption could lead to double and multiple taxation, a deterioration of international tax cooperation, and trade protectionism and a further impeding of global capital flows.
Based on the process by which the financial transaction tax is coming together, the securities and business groups concluded that the tax is specifically designed to be global in its reach, and, as such, it would collect revenue from financial markets and investors around the world to which the minority of E.U. countries that support the tax have little or no connection. Of particular concern is the extremely broad concept of residency embedded in the EC proposal which, coupled with the issuance principle, would extend the financial transaction tax to many transactions occurring within the United States that have no direct connection to Europe.