Trio demands rethink on cross-border savings tax

Date: 14/01/1999

By Tim Jones

SWEDEN, Denmark and the Nether-lands have called for changes to the EU's planned 20% tax on cross-border savings to ensure they get their 'fair share' of €100 billion in potential revenues.

The three governments are warning that the current proposal, which would allow member states to choose between imposing a levy or informing non-resident savers' tax authorities of interest paid to them, would lead to billions of tax-euro staying in countries with tight bank secrecy laws.

"The draft directive will give an illusion of legitimacy to the current situation," claim the three finance ministries in a letter to EU counterparts. "Revenue-sharing cannot completely correct this, but it does provide more balance. Revenue-sharing could bring about a situation in which the state of residence does in fact get a fair share of the tax withheld on the interest paid to its inhabitants."

Luxembourg attracts hundreds of billions of euro of foreign savings because it does not levy a withholding tax and ensures banking confidentiality. Overall, the Austrian Research Institute calculates that €500 billion in undeclared savings is stashed away across borders within the Union.

If EU governments sign up to a common savings tax regime by the end of this year as hoped, the Grand Duchy is expected to choose a levy over information-sharing. The Danes, Dutch and Swedes claim they would lose out because their residents with savings in Luxembourg would pay tax there.

The trio outlined their proposed changes to the controversial savings tax plan at a meeting of national experts last week and have promised to put together draft legislation by mid-February.

But their approach is already clear. Their scheme would require savers to declare their normal place of residence to the banks where they are depositing their cash. Even in countries which allow numbered accounts - Austria, Belgium and Luxembourg - banks are obliged to check depositors' identities and they also make a note of their country of residence.

"In this way, banking secrecy is not compromised; the privacy of the account holder remains fully protected," say the three governments, recommending that the revenue-sharing system should be overseen by the European Court of Auditors.

The German presidency has identified revenue-sharing as one of two key issues standing in the way of agreement in principle in time for the Helsinki summit in December.

The second is the vexed question of taxing the interest 'coupon' from debt securities denominated in a currency other than that of the issuer (eurobonds). The British government, which fears losing the €3-trillion bond market to New York or Switzerland, remains opposed to including these bonds in the new law.