Helsinki bids to kick-start savings tax talks

Date: 24/06/1999

By Tim Jones

THE Finnish government has called two special meetings of top fiscal officials next month in a bid to inject urgency into stalled talks over the planned EU-wide savings tax.

Helsinki, which assumes the rotating presidency of the Union next week, hopes this will kick-start negotiations, so enabling member states to meet their self-imposed December deadline for clinching a deal. "We take this deadline very seriously because there is strong political pressure to conclude this package under our presidency," said a senior Finnish official.

But plans to tax energy consumption are likely to be put on the back burner during Helsinki's six-month stewardship of the EU, given the Spanish government's seemingly implacable opposition to the proposal.

Diplomats were stunned by Madrid's outright rejection of the latest German compromise proposal, which included exemptions for coal burning and long transitions for undeveloped gas markets. "This went further than it was possible to go to get the Spanish on board and all they did was harden their position," said a non-Finnish tax diplomat.

Although Helsinki is considering holding bilateral talks with Spain to try to overcome its opposition, the negotiations on the savings tax plan are seen as far more likely to yield fruit.

The Finns have scheduled the first meeting of all 15 finance ministry directors-general for tax policy for 9 July, in the hope that Britain will have circulated its long-promised proposal to exempt high-value foreign currency bonds from the scope of the tax by then.

The current proposal would allow member states to choose between setting a 20% tax on interest paid to individual EU nationals by an institution in another member state, or forcing its banks to tell non-resident savers' internal revenue services about interest paid to them.

British official and industry sources say UK Finance Minister Gordon Brown's plan is likely to advocate an exemption for eurobonds when they are traded via international 'clearing houses'.

To avoid any institutional investments falling through the net, Brown's paper will also call for a threshold to be established above which individual bondholders would be exempt from the tax.

The British treasury, the City of London and the European Commission are still arguing over whether the tax should apply to bonds issued in minimum units of more than €40,000 or whether the threshold should be raised.

Lasse Arvela, the Finnish finance ministry's director-general for tax affairs, has already made clear that he will pursue an exemption for eurobond investments in line with the approach taken by the outgoing German presidency.

If the British paper is not ready for the first high-level meeting, discussions will focus on Luxembourg's request for temporary exemptions for investment funds.

Keyword: Eurobonds.