The ECOFIN working group on the savings tax harmonisation package met yesterday in Brussels to pursue discussions on the UK's proposal to move to a compulsory information exchange model.
The 15 member states now seem to have formed into three groups on the issue:
The UK is supported by Germany, France, Italy and Spain in arguing for compulsory information exchange to apply to all countries from a particular date, which would be agreed in advance.
Luxembourg and Belgium (remember the legendary Belgian dentist who was supposed to be the bedrock investor in the Euromarkets, but who has been seldom heard of recently?) want to maintain the choice originally written into the directive, between a withholding tax or information exchange. There is great solidarity between Luxembourg, Belgium and the Netherlands, which formed the Benelux economic union long before the rest of the EEC came into being.
The remaining countries are closer to the Luxembourg position than to the UK's, and suggest a review mechanism which would keep bringing up the question of information exchange but without making it compulsory.
The stalled tax harmonisation package is of course on the agenda for the end-of-term EU summit in June, and agreement doesn't yet seem likely, although there are further working group meetings in the meantime.
Yet to some observers there is an air of unreality about these proceedings. Why is Germany lining up with the UK when domestically its politicians know it is political suicide to threaten banking secrecy? Why is Luxembourg apparently accepting the need for a withholding tax. which would destroy much of its banking sector overnight? Have they both been promised a 10-year transition period? And what of Gordon Brown's insistence that other major G7 nations must fall in line with the information exchange rules alongside the EU? And what about the UK's offshore dependent territories? Not to mention Monaco, Madeira, Andorra and the Netherlands Antilles? This is a Gordian knot indeed, and Brownian motion may not be enough to untie it.
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