EU Taxation Of Savings: Today Is Shoot-Out Day In Luxembourg

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

05 June 2000

The fifteen European Union Finance Ministers had dinner in Luxembourg last night, and today will meet to put the final touches to the finance part of the agenda for the Lisbon summit later this month which will bring the Portuguese presidency to a glorious end in a fanfare of trumpets and communautaire achievement.

Well, that's what the script says. Unfortunately, the British Treasury has other ideas. The previous, Finnish presidency saw Gordon Brown digging in his heels over the plan for an EU-wide 20% withholding tax on interest payments, and the Portuguese, who brokered a plan which would have relied more on information-sharing (an alternative which was included in the original directive), have been frustrated one more time by the British, this time by a masterly reductio ad absurdum on the part of the Treasury.

At first the Brits appeared enthusiastic about information-sharing. Each nation's banks would send information about their EU account-holders to the tax authorities of the other 14 member states, who could then tax their own nationals to their hearts' content. Never mind that in a 26-member Union there would be a mountain of paperwork; never mind that the flood of money leaving the EU on its way to the Caribbean would be enough to fill in the Irish sea; never mind that Luxembourg without banking secrecy would have to return to cattle-herding for a living.

In fact, the Treasury was well aware of the problems, and was simply being Machiavellian: in order to defend its own offshore dependencies, it proposed not only that information-sharing should be mandatory for EU member states, but that it could only work satisfactorily by being extended to all OECD nations and (the absurd bit) offshore jurisdictions as well. The Treasury's initiative was eagerly taken up by the tax police in the OECD and G7, who had been rather feebly threatening 'offshore' with sanctions if it didn't clean up its act on money-laundering, and now saw a way of climbing onto a more substantial bandwaggon.

A hail of politically-correct regulatory missiles started to land on the heads of offshore jurisdictions, driving Luxembourg (which had been hiding behind Gordon Brown's kilt, so to speak) to break cover and accuse Britain of wrecking the chances of EU agreement on the tax harmonisation directive. Whether this was hysterical or hypocritical is hard to judge; anyway, Luxembourg didn't need to worry, because the Treasury's grand plans have terrified so many politicians with their own offshore bank accounts that there is no chance whatsoever of
any global agreement on information-sharing.

Perhaps this theory is plain wrong. Perhaps there will be a classic piece of euro-fudge today. That would be very disappointing - Tax-news prefers to believe that the Treasury has out-foxed the eurocrats for once.

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