Reactions have been mixed to the much-vaunted 'breakthrough' deal among EU countries, which provides for the sharing of information on nonresident savings and investment accounts between national tax authorities within about nine years. Ireland was worried about the potential effects of the interim arrangements. Its worries were the same as those of the Eurobond dealers in the City of London, who had feared that an EU-wide withholding tax on foreign investor income would have harmed their business.

Ireland was anxious about some Irish investment bond business being driven elsewhere, such as Switzerland or other offshore centres. This would happen if the government opted to introduce a withholding tax in the seven-year interim period before full implementation of the new tax rules.

The Portugal agreement cannot be implemented unless third party countries such as Switzerland, the US and offshore tax havens agree by 31 December 2001 to become involved in the information exchange between tax authorities. Under the terms agreed, if "sufficient reassurances" are obtained from third countries not later than October 2002, a seven-year phase-out of banking secrecy in EU countries would become mandatory. In this interim period, EU states would have a choice of passing information or imposing a minimum withholding tax.

As the withholding tax would only be a temporary measure, the Irish Department of Finance is reported as saying that there is "no good reason" to bring it in and therefore the country will opt for an information exchange.

Ireland will probably not be alone in going down this route. Other EU states are likely to follow suit, although Austria and Luxembourg have decided to introduce a withholding tax in the interim period.

Ireland will be faced with applying the new directive to any interest earning security or deposit held by a non-resident in the Irish market. Ordinary non-resident savings accounts held in the Irish credit institutions will be affected. According to the Central Bank, at the end of April, there was euro11.6 billion (£9.2 billion) held by residents from other EU states in Irish credit institutions together with euro16.7 billion from residents in states outside the EU. No figures are available on the amount of funds invested by non-resident individuals in Irish investment bonds but the sum is thought to be "significant".

The Irish financial services sector has expressed scepticism over the plans for an information exchange ever being put into place, principally because of the difficulty of getting agreement from third party countries on an information sharing arrangement. They feel that without this agreement, implementation of the arrangements would simply lead to people putting their cash in places outside the EU.