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ECOFIN Meeting Fails To Agree Savings Tax Compromise

by Ulrika Lomas, Tax-News.com, Brussels

04 December 2002


Yesterday's ECOFIN meeting of European Union finance ministers failed to reach agreement on a compromise plan for the taxation of savings and exchange of information between member states, and sent negotiators back to try to clarify exactly how far the Swiss would go in dismantling banking secrecy - the sticking point for countries such as Luxembourg and Austria which fear a flight of capital if the EU agrees rules which are notably more restrictive than those in competitor countries, especially Switzerland.

In the absence of agreement from Switzerland and the US, among other non-EU centres of banking and investment, the EU's grand plan for automatic exchange of information on savings returns will collapse, wrecking years of negotiation and returning member states to the optional withholding tax system which had been mooted prior to the formation of information exchange proposals at the Feira summit in 2000.

Further talks will now take place between European officials and the Swiss government, and another, unscheduled meeting of finance ministers will to try to agree a final deal, probably next week. Under the Feira proposals, the information exchange plan will lapse if it is not confirmed by the end of this year.

Prior to yesterday's meeting, Luxembourg's Prime Minister and Finance Minister, Jean-Claude Juncker, supported by Austria, had threatened a veto if Swizerland didn't agree to 'equivalent measures', and yesterday's discussion focussed on a proposal whereby the three countries would apply a withholding tax pending the eventual adoption of information exchange, with the proceeds of the tax being divided among member states.

The compromise put forward yesterday by Denmark would see Austria, Belgium and Luxembourg levying a withholding tax on non-residents' savings of 20 per cent between 2004 and 2007, rising to 35 per cent for 2008-2011. Other EU countries would stick to the Savings Directive rules for automatic information exchange from 2004; but it's far from clear that Luxemboug and Austria will agree to hobble their banking sectors in this way, even if Switzerland agrees further dilutions of its banking secrecy, since there will still be plenty of other countries which don't tax savings interest, and which have said they will oppose extension of the EU's rules to outside states.


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