2 - 8 December 1999

EU finance ministers fail to agree over savings tax

by Anthony Manduca

European Union finance ministers on Monday made no progress towards compromise on British demands to exempt international bonds from a withholding tax. This was the last formal chance of a resolution before the Helsinki summit later on this month. This conflict between Britain and its European Union partners over plans for such a EU-wide tax on non-resident savings is set to overshadow Helsinki's EU summit being held between 10-11 December.

Finnish Finance Minister Sauli Niinistö, who chaired the EU meeting, said the two-year-old negotiations were in "dire straits". The Financial Times said the agenda is intended to guide the EU into the 21st century with plans for enlargement to 27 members, the creation of a European defence capability for crisis management and reforming the EU's decision-making processes.

Mr Niinistö said Britain was "at loggerheads with its EU partners" in blocking plans for a minimum 20 per cent withholding tax on non-resident savings as a way of combating tax evasion. Gordon Brown, Britain's Chancellor of the Exchequer, said the impasse was "not a British problem but a European problem". He was prepared to "talk constructively" but would not agree to a savings directive that was against Britain's national interests by threatening London's US$3.000bn international bond market.

Britain, he added, was "not prepared to put at risk jobs in the City", London's financial centre, or risk the trade in international bonds, 75 per cent of which is in London, going to a third country outside the EU.

The Financial Times reported that the deadlock threatens a wider package of tax coordination measures that includes a voluntary code of conduct to outlaw "unfair" business taxes and a directive eliminating cross-border interest and royalty payments between associated companies. Some countries have expressed reservations about the code of conduct and other problems surrounding the withholding tax, but ministers agreed the UK position was the "main obstacle".

They agreed to meet in Helsinki either late on Thursday 9 Decem- ber or more probably during the morning of 10 December, the first morning of the summit, in a final bid to solve the issue. But Mr Niinistö said it was "obvious" it would go to the government leaders. He said it was unlikely the EU would continue with the project if the summit failed to break the deadlock.