Luxembourg Takes Pole Position In EU Savings Tax Battle

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

12 April 2000

The saga of the EU's tax harmonisation package took a new turn over the weekend when the UK's suggestion of information exchange in place of a mandatory withholding tax began to find favour among EU Finance Ministers.

An informal meeting of the Ecofin council in Lisbon on Saturday warmed to Gordon Brown's suggestion that information on the ownership of interest-bearing assets by EU residents should be swapped on a reciprocal basis by all EU states, allowing national tax authorities to ensure that tax is paid on such income.

Whereas until recently Luxembourg was the UK's tacit ally in opposing the mooted withholding tax, which would have affected Luxembourg's major offshore banking and bond issuance sectors, along with the City of London, the tiny state now finds itself among a different grouping: that of countries with tight banking secrecy laws. Austria, Germany and Luxembourg are the three EU existing states with such laws, which Gordon Brown has insisted should be dismantled as part of a move to information-sharing in the interests of tax fairness and harmonisation.

The public statements of German and Austrian finance ministers (made no doubt for domestic political consumption) have been strongly against the removal of banking secrecy; on the other hand they have welcomed the UK's new suggestion, leaving Luxembourg isolated in its total (and unavoidable) opposition to information-sharing, which would be just as disastrous to its 'offshore' business as a withholding tax, and perhaps even worse.

Luxembourg's joint Finance Minister and Prime Minister, Jean-Claude Juncker, criticised the information-sharing proposal as being against the principles of the single market if it resulted in a disadvantaged situation for his country. But maybe he need not worry: Gordon Brown's behaviour thoughout this affair has been carefully calculated to maintain the discussion without running any risk of coming to a conclusion. As long as he insists that all members of the Union must agree to information exchange, and hence the demolition of banking secrecy, and as long as he also pursues a wider application of information exchange, including the US and the UK's dependent territories, then there seems little chance that agreement can be reached, and the most likely explanation of his behaviour remains that he wants to be seen as a good guy by the EU, the OECD, and the dependent territories into the bargain.

Alternatively, you can believe if you want that Gordon Brown is pursuing a noble agenda of global tax harmonisation, against the interests of the dependent territories, and in the face of determined opposition from some of his unwilling EU peers. How likely is that?

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