Cracks Showing in EU Withholding Tax Proposal

Tax-news.com

09 October 1999

There are beginning to be signs that EU leaders have given up hope of achieving the withholding tax as currently proposed in the face of determined opposition from the UK and Luxembourg. At yesterday's monthly meeting of European Finance Ministers Hans Eichel, German Finance Minister, talked about a compromise 'European minimum' on which countries could build their own rules. Earlier in the week, the new Commissioner for the Single Market, Frits Bolkestein, gave a press conference this week in which he offered his personal views on the issue, agreeing that some existing bonds (those with 'grossing-up' clauses) should be grandfathered. The British press inclined to take this as evidence that things were moving in the UK's direction, but it may not be so. If Bolkestein's 'personal' views can be taken as an indication of the Commission's general direction (and if they aren't, Mr Prodi may have something to say about 'personal statements') then it is worrying that Bolkestein didn't address the all-important market issue: why would a future issuer use the EU's markets if there are cheaper ones elsewhere? 'Those who don't learn from history are condemned to repeat it'; and history in this case is the US losing the Euromarkets in the '60s, and Germany being forced to abandon a ruinous withholding tax on interest 10 years ago within months of announcing it. The EU's inexorable progress towards harmonisation has had economically illiterate results before, and no doubt will again. Offshore jurisdictions on the other hand should probably be delighted that the EU may be about to ruin the fund issuing business in its member states, although London, Luxembourg and Ireland will pay a heavy price.

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