A plan to tax financial transactions in eleven EU member states from 2014 is illegal, the bloc's lawyers have concluded, dealing what could be a final blow to the measure as proposed.
The findings set out in a 14-page legal opinion will make it harder to press ahead with a measure aimed at making banks pay about €35 billion a year to make up for receiving taxpayer aid during the financial crisis.
The report is encouraging for Britain, which is the EU's biggest financial centre and is opposed to the tax.
Britain, and several other EU states, refused to participate, leaving the eleven to go it alone and raising questions about how it would work without full participation.
Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia were planning to adopt the tax on stocks, bonds, derivatives, repurchase agreements and securities lending.
However the legal services for EU member states said in their opinion dated 6 September that the transaction tax plan "exceeds member states' jurisdiction for taxation under the norms of international customary law".
The plan is also not compatible with the EU treaty "as it infringes upon the taxing competences of non participating member states", the document obtained by Reuters said.
A transaction tax only in some member states would also be "discriminatory and likely to lead to distortion of competition to the detriment of non participating member states".
Britain is challenging the transaction tax plan in the bloc's top court saying it was concerned it would affect transactions carried out beyond the borders of countries that sign up for it.
Faced with warnings from the industry that the tax could snarl up financing for the economy, there were already moves to scale back the levy and delay its roll out.