Austria could hold key to savings tax deal

Date: 11/05/2000

By Peter Chapman

PRESSURE is growing on Austria's Freedom Party Finance Minister Karl-Heinz Grasser to withdraw Vienna's support for Luxembourg-led opposition to any erosion of banking secrecy in the Union.

Diplomats say Grasser may be poised to put his country's 200-year-old anonymous banking laws on the table, boosting the chances of striking a deal to combat tax evasion at a 5 June meeting of EU finance ministers or the Feira summit two weeks later.

The first test will come next Monday (15 May), when the Portuguese presidency convenes the first of two more high-level meetings planned for this month in a bid to break the two-year logjam over plans to create an Union-wide system for taxing cross-border savings income.

Throughout last year, finance ministers and their top tax officials negotiated on the basis of a European Commission 'co-existence' model, which would have allowed governments to choose between taxing non-resident savers 20% on their capital income or forcing banks to divulge interest paid to foreign EU nationals' home-state authorities.

Adamant British opposition to this model, unless it included a watertight exemption for interest paid on foreign-currency 'eurobonds', dashed hopes of a deal at last December's Helsinki summit.

Since then, UK Finance Minister Gordon Brown has turned the debate on its head. When his chief tax minister Dawn Primarolo published a plan for a complete exchange of information with common taxes, it was written off by Union colleagues as a spoiling tactic, but diplomats say the atmosphere has changed "a lot" since then. "That has less to do with what the Brits said than what they did in their budget," added one.

Brown's March budget abolished withholding taxes on international bonds from April next year and replaced them with a system to "obtain routine information" on the UK savings of all individuals, whether British or foreign. "This information will not be exchanged with other countries other than on a reciprocal basis," said the budget statement.

Brown has used his position in the Group of Seven to push this new agenda and win grudging acceptance for the idea from the French, German and Italian governments. Last month, G7 finance ministers agreed to "work rapidly towards" a position where bank information could be obtained and exchanged by tax authorities.

As a result, tiny Luxembourg has been left isolated with Austria, which is desperate to rejoin the EU fold now that the controversial Freedom Party leader Jörg Haider has resigned.

Luxembourg's position was further undermined by news this week that the Grand Duchy's public prosecutors had uncovered and frozen bank accounts in which the late Nigerian dictator Sani Abacha had salted away €671 million from embezzling state funds. Two of his sons continued to benefit from these secret bank accounts.

The Portuguese presidency is now trying to square the circle between the two positions by encouraging the exchange of information but allowing an interim period for some countries, including Germany, during which a standard tax rate would be imposed.