US Institutes Criticize EU Savings Tax Deal

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

28 January 2003

Reacting to last week's eurofudge which saw twelve European Union member states agreeing to go ahead with comprehensive information exchange on bank accounts and other savings instruments held by each other's citizens, prominent US free-market organisations criticised the deal, and in particular queried Brussels' assertion that the US had already implemented 'equivalent measures' - one of the preconditions for a deal set under the Savings Tax Directive at the Feira summit which established the terms of the deal two years ago.

Andrew F. Quinlan, President of the Center for Freedom and Prosperity, announced, “The bureaucrats in Brussels have substantially scaled back their proposal, but the new Savings Tax Directive is still bad tax policy. The proposal is an unworkable house of cards, and the Center for Freedom and Prosperity will work with the Coalition for Tax Competition to derail this misguided tax harmonization scheme.”

The European Union originally wanted all 15 of its member nations, as well as six non-EU nations including Switzerland and the United States, to collect private financial data about nonresident investors and automatically share that information with the tax authorities of other nations. The new proposal, by contrast, gives three of the 15 EU member states permission to impose a withholding tax on nonresident savings, in recognition of the fact that their competitor, Switzerland and other nations will refuse to go along with information-sharing.

Daniel Mitchell of the Heritage Foundation denounced the new EU proposal, stating, “We are pleased with the defeat of the original EU scheme, but the new proposal is based on the same flawed principles of taxing economic activity in other nations and double-taxing income that is saved and invested. All low-tax, capital-inflow jurisdictions should reject this attack against economic liberalization and tax reform.”

Veronique de Rugy of the Cato Institute condemned the new Directive, but also found reason to celebrate, explaining that, “The EU’s new scheme clearly fails to satisfy the ‘level-playing-field’ clauses in the commitment letters sent to the OECD. This means that low-tax jurisdictions around the world can reclaim their fiscal sovereignty and tell the tax-free bureaucrats in Paris to go jump in a lake.”

Many free-market leaders were surprised by the EU’s wilful misrepresentation of the US position. According to Grover Norquist of Americans for Tax Reform, “The EU admitted last month that US information-sharing policies are not compatible with the Savings Tax Directive. And since America does not impose a withholding tax on most forms of nonresident savings and certainly doesn’t share any revenue with other nations, it also is clear that US policy is incompatible with the revised Directive. So why are the bureaucrats in Brussels misrepresenting the US position? Do they really think people in Switzerland, Luxembourg, and other nations are too stupid to understand that the Directive is going to drive capital to non-participating jurisdictions like America, Panama, and Hong Kong?”

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