EU Reaches Agreement On New Tax Rules For Non-Resident Personal Accounts

by Ulrika Lomas, Tax-News.com, Brussels

23 January 2003

At Tuesday's meeting of European Union Economic and Finance Ministers, a compromise over the long-running savings tax dispute was reached which appears to have pleased everyone - except the OECD.

The Ecofin ministers agreed that from next year, 12 of the 15 EU member states will implement a system of automatic information exchange with regard to the savings income and interest of non-resident account holders.

Austria, Belgium, and Luxembourg, however, will not be obliged to implement this system unless non-members such as Switzerland agree to do so, and will instead levy a stepped withholding tax on non-resident savings, rising from 15% in 2004 to 35% by 2010.

In a statement released following the announcement, the Swiss Finance Ministry cautiously welcomed the compromise, observing that:

'At first sight it appears that the adopted solution conforms to the crucial points of the Swiss position - respecting our legislation and preserving the banking secrecy - while allowing the problems encountered by the EU in terms of taxation of savings to be resolved.'

Luxembourg's Prime Minister, Jean-Claude Juncker also expressed similar approval of the savings tax compromise, arguing that although the 35% withholding tax - which he has previously opposed - may dent the finance centre's profits, Luxembourg can live with the planned solution.

However, Secretary-General of the Organisation for Economic Cooperation and Development, Donald Johnston, is finding the compromise hard to swallow. In a letter to EC President, Romano Prodi and EU governments ahead of Tuesday's meeting, he warned that allowing certain EU member states exemption from exchange of information on tax matters will damage the OECD's 'harmful tax practices' initiative.

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