Not withholding tax or information

The three-year deadlock over proposals for an EU-wide withholding tax on savings by non-residents, was finally broken at the ministerial summit in Portugal last month. The Germans, especially, had sought to impose the tax as a means to prevent tax evasion by their nationals through Luxembourg bank accounts. However, the UK had stubbornly resisted on the ground that the tax would drive the US$3000 billion international bond market out of the City. Instead it broadened the debate to include the whole question of banking secrecy and the shield it offers to money laundering and tax evasion. The Chancellor of the Exchequer, Gordon Brown argued, ultimately successfully, for an alternative reciprocal information exchange that would entail notification of savings income to non-residents’ domestic tax authorities and he called for an end to banking secrecy provisions. Luxembourg and Austria initially rejected the plans but finally agreed after they secured the right to operate a withholding tax during a seven year transition period. EU finance ministers have set 31 December 2002 as a date by which they want to see non-EU countries - notably the US and Switzerland and offshore tax havens - participate in information exchange arrangements.