Finland steps up efforts to secure savings tax deal

Date: 29/07/1999

By Tim Jones

THE Finnish presidency is fast-tracking talks over EU-wide savings taxes which have been held up by British foot-dragging over how to exempt high-value foreign-currency debt from their scope.

The Finns have convened an unprecedented four meetings of Union tax experts in September in an effort to make serious progress on the negotiations in time for their set-piece summit in December.

Helsinki is planning a meeting of low-level experts immediately after the summer break, followed by two gatherings of tax directors-general on 20-21 September and further negotiations nine days later.

However, the Finns have made it clear that the talks will stall unless UK Finance Minister Gordon Brown fulfils his three-month-old promise to come forward with a paper setting out how institutional or 'wholesale' bondholdings could be exempted from the tax. "If the paper has not appeared by mid-September, serious questions will certainly be asked," said one diplomat.

Under the European Commission's proposal, governments could choose between setting a 20% tax on interest paid to individual EU nationals by an institution in another member state or force its banks to tell non-resident savers' internal revenue services about interest paid to them.

This would also apply to interest 'coupons' from bonds, prompting British fears that the measure could drive the €3-trillion 'eurobond' market out of the City of London to New York and Zurich.

However, at an informal meeting of EU finance ministers in April, Brown implied that he could accept an exemption for the wholesale market and promised a detailed paper explaining how this could be done.

When this did not materialise, Brown assured ministers that it would be ready by the end of June and then again in time for an expert group meeting last week. His failure to produce the paper forced Lasse Arvela, Finland's director-general for tax affairs, to cancel the meeting and reschedule it for September.

Some British sources say the delay is due to problems in drafting a workable solution in the inland revenue tax department, but others believe Prime Minister Tony Blair's office has told Brown that he should not compromise.

Representatives of the City's eurobond issuers and traders will meet top officials from the inland revenue tomorrow (30 July) to discuss the state of play in the negotiations.

The Finns are also planning to hold the first discussion under their presidency on plans for pan-EU energy taxation in September.

Attempts by the German presidency to overcome adamant Spanish opposition to the idea by offering exemptions for coal burning and long transitions for underdeveloped gas markets came to nothing.

"We will try to push it forward but it has become a highly political question which must be solved at the political level," said Arvela.

Arvela expects a political steer from the informal meeting of EU finance ministers in Turku in September.