After Monday's EU savings tax deal (see the full story in Tax-News yesterday), what will the Belgian dentist do with his money in future? He has until the end of February to buy Eurobonds in London - they will be 'grandfathered' under the rules, ie they will be immune from reporting requirements. But after the end of February, if he buys a bond in Europe, then from 2003 the interest will either be subject to 15% withholding tax (in Belgium, Austria and Luxembourg and rising to 20% from 2006) or it will be reported to his national tax authorities (in the other twelve EU member states). That's to say, it will be illegal for an issuer to sell a bond without proof of nationality, and EU nationals will have to give taxpayer identification numbers. Interest payments will be reported to the appropriate national taxing authority. In the three 'withholding' countries the 15% or 20% tax withheld will be shared 25%/75% between the country making the deduction and the taxpayer's home country.

Our dentist won't go to Switzerland: there is already a 35% withholding tax in that country on interest payments, although at least our friend would retain anonymity. The Swiss Federal Council reacted to Monday's EU news by saying that Switzerland could be flexible about extending its withholding tax system, but would not under any circumstances give up banking secrecy. They will come under heavy pressure to do so, because the EU agreement is conditional on getting agreement by 2002 from major banking nations and territories on the principle of information-sharing. The dentist is sceptical about the chances that the US under President Bush and with a Republican Congress would abrogate banking secrecy under pressure from the EU, but he isn't going to take the chance. So he rules out Switzerland and its partner Liechtenstein (a Swiss/Liechtenstein combination is tax-efficient and secret), which would have to give in if the US falls into line.

In the end, calculates the dentist, the information-sharing regime probably lives or dies according to the behaviour of the European offshore jurisdictions: the UK's offshore islands, Liechtenstein, Monaco and so forth. It is Luxembourg more than any other EU member state that stands to lose from information-sharing that is other than universal, and Luxembourg can't agree to it and survive unless its offshore competitors are bound by the same rules. What are the chances that Jersey et al will embrace information-sharing? One related piece of little-noticed good news for the offshore territories from Monday's Ecofin Council is that the other part of the EU's tax directive, the 'Code of Conduct' appears to have been comprehensively buried. The Code of Conduct Committee, chaired by the UK's Paymaster-General Dawn Primarolo, had listed 66 'harmful' tax regimes in EU countries and their dependent territories. It was adopted on Monday on a 'voluntary' basis, which is Eurospeak for 'abandoned'. So the dentist thinks that the offshore territories will survive, and that information-sharing will never happen across the Union - perhaps after the Nice summit next week fails to adopt majority voting for fiscal affairs 'variable geometry' will become the name of the game, and the major EU countries will go ahead with information-sharing on their own.

Anyway, to be on the safe side M. le dentist decides to avoid all of the offshore dependencies which have been under pressure to change, and remembers a colleague, an ardent skier, who has been singing the praises of Andorra. Although theoretically under the joint control of France and Spain, Andorra seems to have managed to avoid being picked on by staying completely motionless under its blanket of snow - there is never any news from or about Andorra. So our friend is off next weekend on a reconnaissance visit, with a few gold bars in the back of his Mercedes, and we'll be reporting next week on his assessment.

Fanciful? Maybe, but on Tuesday morning Tax-News.com received an urgent e-mail from an investor asking why we hadn't covered Monday's news (our story was published by mid-day on Tuesday). 'On behalf of all free investors . . .' began the e-mail. The EU has indeed just written a collective financial suicide note: whether it has the nerve to jump into the abyss remains to be seen, but most 'free investors', along with Belgian dentists, probably aren't going to hang around to find out. Now where did I leave my skiing boots . . .?