EU governments agree to share savings tax spoils

Date: 05/10/00

By Peter Chapman

EU GOVERNMENTS have removed a key stumbling block to a Union-wide regime for taxing savings by agreeing how to share out the billions of euro in revenue generated by the levy.

Sources say national tax experts clinched a deal this week paving the way for those countries which choose to charge a 20-25% withholding tax on non-residents' savings to share the revenue with the investors' home countries.

Although EU leaders agreed to tackle this issue after securing a hard-won compromise on the savings tax package at the Feira summit in June, few insiders expected France to deliver an agreement on the way the system would operate before the end of its Union presidency in December.

"It seems that there is an agreement in principle on revenue sharing. This is a significant step. The only real outstanding issue now is the level of tax that is actually transferred to the home country. Ministers of finance can take that decision in November," said one source.

Experts predict that agreeing the percentage of the levy to be transferred will pose few problems. "It is not a controversial point. There are lots of ball-park figures flying around," said one. One idea under consideration would, for example, force Luxembourg to send 90% of the revenue from taxing other EU nationals' savings back to their home country and keep just 10% to cover administrative costs.

Agreement on carving up receipts is seen as crucial because of fears in high-tax countries such as Sweden, Denmark and the Netherlands that Luxembourg and Austria - where many EU savers choose to deposit undeclared cash - could gain a massive windfall by introducing the levy unless they are forced to return some of the proceeds to the investor's home country.

This is because interest on savings is levied at 60% in the Netherlands, whereas the withholding tax would be set at between 20-25% in countries which opted to introduce the tax rather than simply exchange information about non-resident savers' earnings with their national authorities.

Luxembourg has long been the most attractive venue for hundreds of billions of euro in foreign savings because it currently offers the irresistible combination of no withholding tax and banking confidentiality, while Austria also jealously guards its domestic banking secrecy rules. The Vienna-based Austrian Research Institute estimated last year that EU citizens are stashing away up to €500 billion in undeclared savings in other member states.

The revenue-sharing scheme would require savers to declare their normal place of residence to the banks where they deposit cash. Even in Luxembourg and Austria, which allow numbered accounts, banks are obliged to check depositors' identities and note their country of residence.

A Stockholm tax expert said the amounts member states would receive under the new revenue-sharing system was less important than the principle that tax havens such as Luxembourg should not grab more than their fair share of tax receipts. "We do not expect a lot of money," he said. "If it is fair, it is easier to defend the system politically."

A deal offers fresh hope that the savings tax legislation will make it onto the EU's statute books sooner rather than later. But a French presidency progress report on the broader tax package to be delivered at the 17 October meeting of Union finance ministers will point to other formidable obstacles which still have to be overcome.

The most crucial of these is the outcome of negotiations with other financial centres such as Switzerland, the US and off-shore tax havens aimed at persuading them to introduce similar legislation. If these talks fail, Austria and Luxembourg will be able to block implementation of the new rules.

EU governments have removed a key stumbling block to a Union-wide regime for taxing savings by agreeing how to share out the billions of euro in revenue generated by the levy.