Commission seeks to allay UK fears over savings tax

Date: 24/02/2000

By Tim Jones

AN EU-wide framework for taxing savings could be established with a minimal extra administrative burden on the City of London, according to the results of an inquiry by the European Commission into UK rules to combat evasion and money laundering.

The report, which has been prepared for a meeting of top Union tax experts tomorrow (25 February), is designed as a first step in the campaign to convince UK Finance Minister Gordon Brown to drop his opposition to the proposed levy on cross-border income from bank deposits and bonds.

Since EU leaders agreed at their Helsinki summit in December to set up a 'high-level working group' to try to break the deadlock over the tax plan, Commission officials have been examining whether UK inland revenue requirements could be adapted to fulfil the requirements of the new levy.

Their report points out that under current British rules aimed at preventing money laundering, banks and specialist 'paying agents' are already required to obtain information on their regular non-resident customers concerning their identity, nationality and permanent address.

It adds that the UK's four-year-old tax deduction scheme for foreign dividends and eurobond interest also requires agents to monitor overseas clients' investment receipts and report every three months to the inland revenue.

The Commission plan would allow EU governments to choose between withholding 20% of interest paid to non-resident savers or oblige their banks to inform non-residents' home-state tax authorities about returns on their investments.

In Helsinki, Brown refused to drop his demand that the scope of tax be limited to bank deposits and ignore foreign-currency debt ('eurobonds'), which is traded largely from the City of London.

The working group, which is chaired by Portuguese State Secretary for Fiscal Affairs Manuel Baganha, will negotiate on the basis of a compromise paper put together by the former Finnish presidency and Internal Market Commissioner Frits Bolkestein.

This proposed allowing UK-based banks to do no more than meet their obligations under the nine-year-old EU money laundering directive, which obliges banks taking deposits from foreign Union nationals to check their identification when an account is opened, and when a single transaction or linked transactions exceed €15,000.

Representatives of the eurobond market are, however, sceptical that this will work. "I do not think the money laundering directive gets you very far," said Cliff Dammers, of the International Primary Markets Association. "That requires you to get a customer's contact address and not his tax residence, and payments do not need to be reported unless the bank is suspicious."

An EU-wide framework for taxing savings could be established with a minimal extra administrative burden on the City of London, according to the results of an inquiry by the European Commission into UK rules to combat evasion and money laundering.