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EU Pends Withholding Tax Plan as UK Stands Firm

12 December 1999

European finance ministers finally shelved their plans for a 20% European withholding tax at last week's EU Summit in Helsinki as the UK stood firm in its opposition to the tax which it claims would devastate London's lucrative Eurobond market.

Although no agreement could be reached on the withholding tax, the Ministers did agree to continue talks next year with the aim of finding a solution in time for next June's EU leaders' summit in Portugal. The agreement to temporarily shelve the withholding tax issue was the only alternative available to keep the EU's two year long discussions on tax harmonisation from going completely off the rails.

EU President and Finnish Prime Minister Paavo Lipponen warned the UK that it could not avoid the tax harmonisation issue forever and that the EU was determined to press ahead with its agenda to close down the tax loopholes which distort the European market. 'The long and heavy hand of the tax man is inevitably going to land on this kind of income no matter how long it takes', Mr Lipponen said after the Summit.

Some EU finance ministers were not so tactful in showing their disappointment with the UK's uncompromising stance, particularly following the provocative comments made by UK Chancellor Gordon Brown before the Summit. The Dutch finance minister Gerrit Zalm said ''Al Capone would never have been caught" if it was up to the British.

One of the main frustrations expressed by EU finance ministers at the summit was that the lack of progress on tax harmonisation is likely to jeopardise their ability to co-ordinate economic policy on a Europe-wide basis when the Euro becomes the shared currency of 11 of the EU's members. 'There cannot be a single market and a common currency without progress in co-ordinating tax policy,' said German Finance Minister Hans Eichel.


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