| Author (Person) | Bower, Helen | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 4.12.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 04/12/2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The objective of adopting new EU rules on taxation of savings before the end of 2002 is looking increasingly unachievable after finance ministers from across the EU's Member States failed to reach an agreement at a meeting of the Ecofin Council in Brussels on 3 December 2002. The proposal for a Directive on the taxation of income from savings was presented for the first time by the European Commission in 1998 [COM(98)295 final] as part of a wider set of proposals aimed at tackling harmful tax competition and eliminating some of the remaining tax distortions in the Internal Market. At the Feira European Council in June 2000 EU leaders agreed to set a deadline of the end of 2002 for agreement to be reached on the tax package, which consists of the following three key measures:
The proposal concerning the taxation of savings aims to prevent EU citizens from evading their home country's taxes by depositing their money in bank accounts in other Member States such as Luxembourg where current banking secrecy laws mean that other countries cannot obtain information about the interest earned on these accounts. The original proposal aimed to rectify these tax distortions by establishing a minimum level of taxation on cross-border savings income and setting up a flexible 'coexistence model' enabling Member States to levy tax effectively by choosing from two options:
At the Feira European Council in June 2000 it was agreed that in order to make the Directive effective, negotiations should be opened with six non-EU countries to ask them to apply 'equivalent' measures in order to prevent citizens continuing to evade taxes by placing their money in accounts outside the EU. The United States, Switzerland, Andorra, Liechtenstein, Monaco and San Marino were all viewed as possible 'tax havens'. Following the European Council meeting, the European Commission presented an amended proposal in 2001 [COM(2001)400 final] which took account of the need for third country negotiations but more importantly scrapped the flexible 'coexistence model'. Instead, it proposed that each Member State must provide information to other Member States on interest paid in that Member State to individuals residing in other Member States with a seven-year transitional period for Belgium, Luxembourg and Austria during which they would be able to levy a withholding tax at a rate of 15% during the first three years and 20% for the remainder of the period rather than exchanging information. However the proposal has met with stiff opposition from both within the EU and outside. Austria, Belgium and Luxembourg, which all have a tradition of banking secrecy, are all against the plan and have said they will only agree if Switzerland, the United States and 12 major tax havens of the world also adopt the rules. However, Switzerland, Liechtenstein and the United States have all expressed their opposition making any progress difficult. The United States has refused to make a formal declaration of what they are prepared to agree to, preferring bilateral deals with a number of offshore centres to the EU's rules. Meanwhile, Switzerland is proving just as adamant in refusing to give up its banking secrecy insisting that tax evasion by EU citizens is none of their business. In the latest compromise on the table, the Swiss government has offered to levy a 35 per cent withholding tax on interests paid to EU citizens' Swiss savings accounts and to give two thirds of the proceeds to EU governments. However, this would only be on offer if Switzerland could maintain its banking secrecy, only exchanging information in cases of suspected tax fraud , but not in cases of alleged tax evasion. This proposal seems unacceptable to Austria, Belgium and Luxembourg who insist that they will only sign a deal if Switzerland also agrees to surrender its secretive banking system. Otherwise, they fear that their lucrative banking sector will suffer as customers move their accounts to other tax havens. These fears were compounded at the Ecofin Council meeting because of new suggestions in a compromise tabled by the Danish Presidency that the withholding tax available to these countries during the transitional period should be increased to 20% between 2004 and 2007 and 35% for 2008-2011. However, all three governments have said any increase on the figures agreed at Feira are not acceptable. The Luxembourg Prime Minister, Jean-Claude Juncker, said that higher taxes would be opposed as they would increase the risk of savers moving to countries with less strict savings regimes. In the face of such resistance from both Switzerland and these three EU governments some tough bargaining will be needed if a deal is to be secured before the end of 2002 and a collapse of the plans avoided. The Council has called on the European Commission to intensify negotiations with Switzerland whilst other EU Member States are expected to put pressure on the three small EU Member States to agree to the deal. Finance ministers have agreed to convene an 'extra' Council meeting before the end of the year in the hope of making the deadline but with the Directive requiring unanimous support, this is looking increasingly unlikely. If the proposal does collapse, then plans to allow EU countries to impose a withholding tax could be resurrected although these are strongly opposed by the United Kingdom.
Helen Bower The objective of adopting new EU rules on taxation of savings before the end of 2002 is looking increasingly unachievable after finance ministers from across the EU's Member States failed to reach an agreement at a meeting of the Ecofin Council in Brussels on 3 December 2002. |
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| Subject Categories | Taxation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
