Lisbon bids to break savings tax deadlock

Date: 06/04/2000

By Tim Jones

AUSTRIA, Germany and Luxembourg could keep their banking secrecy laws for a set period and impose a time-limited levy on cross-border savings under a tentative proposal devised by the Portuguese presidency to revive the EU's stalled withholding tax plan.

The idea, which State Secretary Manuel Baganha will outline to finance ministers at their informal meeting in Lisbon this Saturday (8 April), is aimed at buying off implacable British opposition to the tax after nearly two years of EU in-fighting.

Agreement on this approach, which would allow other governments to swap information about interest paid by banks in their jurisdiction to EU non-resident savers, would resuscitate the three-pronged tax package which had been left for dead after last December's acrimonious summit in Vienna.

At that meeting, UK Finance Minister Gordon Brown refused to agree to a watered-down version of the European Commission's original proposal to require governments to impose a 20% levy on non-resident capital income or inform savers' home-state tax authority of interest paid to them.

Claiming that the proposed tax law would drive the €3-trillion market for foreign-currency 'eurobonds' out of the EU and into Switzerland and the US, Brown's officials came up with a scheme to fight tax evasion based solely on exchanging information. But this was unacceptable to Luxembourg, Germany and Austria.

In a bid to break the deadlock, a high-level group chaired by Baganha met this week. Several members of the panel pressed Brown's Tax Minister Dawn Primarolo to consider a temporary solution allowing interim taxes while banking secrecy laws are phased out but she did not respond.

Failure to strike a deal on the savings levy would derail attempts to roll back 66 predatory corporate tax regimes painstakingly identified over two years by a committee of officials policing the EU's code of conduct on business taxation chaired by Primarolo.

At this weekend's ministerial meeting, Economics Commissioner Pedro Solbes will outline his revised forecasts for the euro zone's economy over the coming year, due to be published next Tuesday (11 April). He is expected to revise last autumn's prediction of 2.8% growth this year upwards to at least 3.0%, although this will still be below the 3.2% forecast last week by the International Monetary Fund.

Officials say the forecasts will have to be upgraded in light of rising consumer confidence, stronger domestic demand, the weakness of the euro against the dollar, falling corporate tax rates and historically low interest rates.

Against this background, both the Commission and European Central Bank President Wim Duisenberg will call for extra efforts to be made by all euro-zone governments to reduce budget deficits.

Austria, Germany and Luxembourg could keep their banking secrecy laws for a set period and impose a time-limited levy on cross-border savings under a tentative proposal devised by the Portuguese Presidency to revive the EU's stalled withholding tax plan.