US Congress Attacks EU On Savings Tax Directive

by Mike Godfrey, Tax-News.com, New York

11 February 2002

The US Congress has started to interest itself in the EU's Savings Tax Directive. Under the agreement made at the EU's Feira Summit in 2000, the Directive (which imposes information-sharing rules on all EU states) can only go into effect if key non-EU jurisdictions have signed up to similar rules by the end of 2002. That means Switzerland, top offshore centres like the Isle of Man and the Channel Islands, and in particular, the US.

Switzerland has shown no willingness to adapt its banking secrecy rules to the EU's whim, and instead offers toughened-up withholding tax rules. The US is however the bell-wether of this flock. If the US were to agree, other countries might have to fall in line. But neither the administration nor the Congress is a pushover for the EU.

Congressman Pete Sessions of Texas, a member of the House of Representatives' powerful Rules Committee, says "it is
difficult to understand why members of Congress should support a scheme that would undermine America's competitive advantage in the global economy," and has written to Mr. Romano Prodi, President of the European Commission,
asking him to "answer a few simple questions." The Congressman plans on sharing the President's responses with the rest of Congress.

The following is the text of Mr Sessions letter:

February 7, 2002

Mr Romano Prodi
President of the Commission
European Commission
Rue de la Loi 200
1049 Brussels
Belgium

Dear Mr. President:

The European Union's proposed Savings Tax Directive is contingent on participation of six non-EU nations, including the United States. Yet America is a capital-inflow nation, in large part because our tax burden is much lower than the average tax burden in Europe. As such, it is difficult to understand why members of Congress should support a scheme that would
undermine America's competitive advantage in the global economy.

To assist members of Congress in analyzing this issue, I am hoping you can answer a few simple questions:

1. Do you think sovereign nations have the right to determine how income earned inside their borders is taxed?

2. Have EU member nations considered tax rate reductions and tax reforms as an alternative way of stopping capital flight?

3. Even if the six non-EU nations participate, is the EU's Savings Tax Directive feasible? Won't savings simply gravitate to other jurisdictions (in Asia and elsewhere) outside of the proposed cartel?

4. The Savings Tax Directive assumes that there should be multiple taxation of income that is saved and invested. But if a nation reforms its tax system to eliminate double-taxation, would that nation still be expected to collect data on savings even if such information was not needed for domestic purposes?

5. Should taxpayers have due-process legal protections, such as the right to contest the release of confidential financial information?

Thank you for providing assistance as Congress considers this important issue. I look forward to your prompt and specific response to these questions.

Sincerely,

Pete Sessions
Member of Congress

cc: The Honorable Paul O'Neill, United States Department of the Treasury
Secretary
The Honorable Trent Lott, Senate Majority Leader
The Honorable Richard Armey, House Majority Leader
The Honorable Bill Thomas, House Ways & Means Chairman
The Honorable Rockwell Schnabel, United States Ambassador to the European
Union
The Honorable Günter Burghardt, European Union Ambassador to the United
States

.

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