ECOFIN And EU Ministers Hope For Agreement on Tax Package

Lisa Ugur, Tax-news.com, London

14 June 2000

The EU withholding tax debate rumbles on without agreement across the board, although this could change on Sunday when an informal ECOFIN meeting takes place in Feira, Portugal, to try to reach agreement on the witholding tax element of the package of tax proposals which the EU hopes will be finalised this month.

The whole tax package is made up of three elements: the Code of Conduct, Taxation of Savings and Taxation of Interest and Royalties. The savings tax element, which is a 20% tax to be applied to interest payments, has not been popular with the UK and at the last ECOFIN meeting in Portugal in April, the UK reiterated its unwillingness to accept the tax, in order to defend London's lucrative Eurobond markets.

UK Chancellor Gordon Brown has been quite firm on his position and but has, however, offered an alternative proposal - that the withholding tax be dropped in favour of the operation of a policy of disclosure of information. Naturally, some jurisdictions such as Luxembourg and even high tax countries such as Germany, both of which have fastidious banking secrecy laws, would be horrified at the very thought but nevertheless the last ECOFIN meeting was deemed to have been a success in that it did clarify the UK situation and moreover, Brown's proposals did muster significant support.

There are high hopes riding on this week's meeting in Portugal and the EU is certainly optimistic that a solution can be agreed and that the tax package can go ahead this month. If agreement is finally reached, the impact for some companies operating in Europe could be very severe. The Code of Conduct Group, chaired by Treasury Minister Dawn Primarolo, has identified 250 so-called "harmful tax schemes", 66 of which lie in Europe. As these schemes might be used to avoid paying taxes and as a result cause EU member states to lose important revenues, it has been judged that these schemes should be adapted or dismantled by 1 January 2003, which is the date for application of the EU's package of proposals. Amongst the countries targeted are Ireland, Luxembourg and Gibraltar, plus Guernsey, Alderney, Jersey and the Isle of Man.

Prospects for the tax package going through are good, if the savings tax element can somehow be separated from the remainder of the package, given that EU governments are becoming increasingly keen to work together to tacke the problem of tax evasion. The idea of disclosure of information or greater transparency is gaining in popularity, but it may be impossible to please everyone all of the time and it is certain that some jurisdictions will not tolerate complete transparency.

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