Taxation of savings: Finance ministers agree on deal, January 2003

Finance ministers from the EU's Member States reached agreement on a new set of rules aimed to combat tax evasion at a meeting of the Ecofin Council on 21 January 2003.

After years of negotiations, the Member States agreed to a proposal concerning the taxation of savings whereby 12 of the 15 EU countries will share information on the savings of non-residents in their country from 2004, making it harder for people to evade tax by hiding their savings in another European country. Austria, Belgium and Luxembourg, who argued strongly for the right to protect their tradition of banking secrecy will not share this information; instead they will levy a withholding tax on savings interest earned by citizens of other EU Member States. The tax will be introduced at a rate of 15% in 2004 rising to 20 per cent after 2007, and 35 per cent after 2010. 75% of the revenue received through these withholding taxes will be transferred to the country of origin.

The deal was made possible after Switzerland, a non-EU Member, agreed to levy a 35% tax on foreign investments and pass it on to the relevant countries, quelling fears in Luxembourg, Austria and Belgium that their lucrative banking sector would suffer as customers moved their accounts to other tax havens. Under the political agreement, the three countries would only have to end their banking secrecy if the EU decided unanimously that Switzerland had complied with international standards of banking disclosure. Offshore territories such as the Channel Islands and the UK's Caribbean dependencies have also agreed to participate in the scheme and the EU is to continue to press the US, Liechtenstein, Monaco, Andorra and San Marino to adopt similar measures.

Although the agreement still needs to be approved by Switzerland, it has been welcomed across the EU. Frits Bolkestein, the European Commissioner responsible for tax issues, said that the deal would mean that every EU citizen would pay an equitable tax on income invested abroad and added, 'The Doubting Thomases of this world who said we would never come to this have not been proven right'. UK Chancellor, Gordon Brown, also welcomed the deal, saying, 'Today's important agreement secures the principle of exchange of information on tax matters - not a one-size-fits-all tax harmonisation'.

However, the Organisation for Economic Co-operation and Development (OECD) have criticised the EU for agreeing to a deal that allows three EU Member States to maintain their banking secrecy. The OECD's secretary general, Donald Johnston, suggested that the agreement could endanger a global effort to crack down on tax havens and damage the OECD's own efforts to promote greater financial openness worldwide.

Links:
Council of the European Union:
	21.01.03:	Press Release: Economic and Financial Affairs Council, Brussels, 21 January 2003 [PRES/03/15]
BBC News Online:
	21.01.03:	EU crackdown on tax evaders
European Sources Online: Financial Times:
	22.01.03:	EU seals compromise deal on savings tax
	22.01.03:	Brown helps to unlock door to a solution on savings tax
European Commission:
	DG Taxation and Customs Union: Taxation of savings
	SCADPlus: Taxation of Savings
	Proposal for a Council directive to ensure effective taxation of savings income in the form of interest payments within the Community [COM(2001)400]
Organisation for Economic Co-operation and Development:
	Homepage
	List of unco-operative tax havens
	Ending Tax Haven Abuse [April 2002]
European Sources Online:
	Taxation of savings: Agreement eludes finance ministers

Helen Bower

Compiled: Wednesday, 22 January 2003

Finance ministers from the EU's Member States reached agreement on a new set of rules aimed to combat tax evasion at a meeting of the Ecofin Council on 21 January 2003.