Europe's plan for an expansive financial transaction tax hit a wall after the top legal adviser to finance ministers concluded it exceeds national jurisdiction, "infringes" on EU treaties and "is discriminatory" to non-participating states. The unusually blunt paper from the EU Council legal service, obtained by the Financial Times, deals a heavy blow to a European Commission proposal to introduce a €35bn eurozone levy with global reach. While the conclusions are non-binding, the strength of the legal objections is likely to accelerate moves to scale back the design of any common levy. A new version could more closely resemble a stamp duty, which taxes securities based on where they are issued. British officials said the paper "vindicated" their decision to mount a separate legal challenge. Eleven eurozone states - including France, Germany, Spain and Italy - want to agree a joint tax, but negotiations stalled as key states balked at the original plan's broad scope and the practical risks of implementing it. The commission insists its design is watertight and said the legal debate would not necessarily derail the talks. The council's legal service paper challenges a core element of the so-called "residence principle," which seeks to tax institutions according to where their headquarters are based, rather than where the trade is executed. This anti-avoidance measure allowed the so-called "Robin Hood tax" to cast a much wider net, catching trades in London, New York or Singapore - as well as non-eurozone groups trading with counterparties in the tax area. Council lawyers concluded that applying the tax to groups outside the tax bloc "exceeds member states" jurisdiction for taxation under the norms of international customary law as they are understood by the union." It added that the measure "is not compatible" with the EU treaties "as it infringes upon the taxing competences of non-participating member states." Finally it found that the provision was "discriminatory and likely to lead to distortion of competition to the detriment of non-participating member states." The lawyers argued existing tax accords made it easier to collect the levy within the EU than outside - thereby disadvantaging companies based in the 17 EU states without the tax versus those outside the entire bloc. Algirdas Semeta, EU tax commissioner, defended his policy on Twitter: "FTT is legally sound and fully complies with EU treaties and international law." His original proposal prompted howls of outrage from the financial sector, which argued it would gum up markets, hurt growth and punish retail investors. Such a firm legal critique from the council is rare, particularly on a flagship commission proposal with such political resonance across the bloc. Some diplomats speculated that it was designed to give previously enthusiastic FTT supporters a sound excuse to water down the proposal or ditch it altogether. Berlin supports an FTT but in private talks has raised substantial concerns about design. The outcome of the German federal elections this months are seen as pivotal to the negotiations in Brussels. The finance ministry said the "legal concerns must be solved as fast as possible."