Austria Still Holding Up The Withholding Tax Directive

Jeremy Hetherington-Gore, Tax-news.com, London

20 June 2000

After a day and a night of intensive negotiations, the EU's finance ministers in Santa Maria da Feira are inching towards agreement on the withholding tax directive, with only Austria now still holding out against the plan for compulsory information sharing, no doubt in order to obtain the best deal it can get on ending its political exclusion inside the EU.

Austrian finance minister Karl-Heinz Grasser, said the proposed information exchange system was dependent on financial centres from Switzerland to the Caribbean accepting similar measures, which was highly questionable. "We are still convinced that the withholding tax as we have it in Austria, at 25 per cent, could be a model for the rest," said Mr Grasser.

He may well be right: the period during which member states can choose between imposing a tax (at a minimum 20%) and operating information exchange has now been extended to seven years from five, and the 'waiting' period allowing for negotiations to bring non-EU states into line has now grown from 2 years to a less precise 'few' years. Therefore it will be at least 9 years before Austria would have to give up its banking secrecy, which is well beyond any politician's horizon! Luxembourg has apparently accepted that it can adjust in the 9 years, although, again, its bankers might have a different view. They think ahead for longer than 9 years.

It's likely that both Luxembourg and the UK, the two countries with the most to lose from a withholding tax, calculate that the 'waiting' period can be extended almost indefinitely, shunting any effective information-sharing into the distant future. Alternatively, the old 'variable geometry' concept may be disinterred, allowing the majority group of member states to go ahead with the terms of the original directive, while hold-out countries pursue a different tack. But then that would be 'unfair' tax competition, would it not? Oh, so difficult to be a finance minister in the EU.

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