France pushes for breakthrough on savings tax

Date: 23/11/00

PARIS is hoping to break the deadlock over how to tax savings deposited by EU citizens in other member states at a special meeting of finance ministers this weekend.

National experts have been struggling for weeks to agree on a common rate for a withholding tax which governments could choose to levy on non-residents' savings as a temporary substitute for sharing information with authorities in the depositors' home country. They also remain divided over how to split the resulting tax revenue between countries where depositors actually live and those where they keep their money.

Luxembourg and Belgium have so far opposed European Commission calls for the withholding tax rate to be set at 20%, claiming that this is far too high. They are also balking at the prospect of just 10% of the savings tax revenue going to the country where the money is invested, with the remaining 90% paid to the depositor's home country.

Sources say the French presidency will table its own proposal as a starting point for intensive negotiations at a specially convened session this Sunday (26 November), ahead of a scheduled meeting of finance ministers the following day.

Despite the opposition from Belgium and Luxembourg, Paris will kick off the debate with a call for an even higher withholding tax rate of 25% and will continue to push for a 10-90 split on the revenue.

But rather than stymie progress, Union sources insist this will leave plenty of room for a deal which could lead to an eventual reduction in the rate of the tax, as well as an upwards revision of the revenue split. The result would be more money staying in countries where money is deposited.

"The final tax rate could go to 18 or 20% with a view to getting Belgium on board and exposing Luxembourg," said one official, who added that the Grand Duchy favoured a rate of just 10%. He pointed out that 18% was close to the 15.5% tax which Belgium currently charges its own nationals.

EU sources said next week's meeting of finance ministers could also yield an eagerly awaited deal on controversial proposals to impose a value added tax on electronic commerce transactions, plugging a loophole which allows firms from outside the Union to escape the VAT net.

Member states had originally poured cold water on Internal Market Commissioner Frits Bolkestein's plans to establish a single country of registration for foreign firms selling 'digitally delivered' goods such as computer software, music or videos over the Internet.

But the sources said an alternative French presidency proposal to force foreign companies to register for VAT in all the member states where they made sales worth more than 5,000 euro, which attracted widespread support initially, is now losing ground.

Instead, EU governments favour a Belgian-inspired alternative which could be approved next week. Under the plan, companies doing electronic business across the Union would be able to register in one country, which would then redistribute tax receipts to other member states in proportion to the actual

business the firms did there.

Paris is hoping to break the deadlock over how to tax savings deposited by EU citizens in other Member States at a special meeting of finance ministers on 26.11.00.