9 - 15 December 1999

EU waters down savings tax plans

by a foreign correspondent

BRUSSELS - The European Commission watered down a contentious savings tax plan yesterday in a bid to win an EU-wide deal before tomorrow's Helsinki summit and placate British fears about the impact on the multi-billion dollar Eurobond market.

European Tax Commissioner Frits Bolkestein and Finnish Finance Minister Sauli Niinisto released a four-page letter to EU finance ministers revising the tax proposals which are designed to crack down on cross-border tax evasion. German companies and investors, for example, place huge amounts of savings in Luxembourg where there is no savings tax.

The revised plan aims to salve UK concerns that a 20 per cent levy on savings interest earned by non-residents would be applied to London's Eurobond market, damaging its tax position. However, Britain said yesterday that the compromise plan contained insufficient detail to strike an agreement ahead of summit

"We only got the letter a few hours ago, there's not sufficient detail here to form an agreement," a government official told reporters. "It is extremely unlikely that the necessary discussions with the bonds markets will have been carried out by the weekend," the official added.

On the other hand, German Finance Minister Hans Eichel said yesterday he saw encouraging signs that European Union leaders might agree a compromise on plans for the EU-wide savings tax during the Helsinki summit.

"The question is how do we tax earnings from capital. We are working intensively and I am a bit more optimistic that we will agree a tax package at this weekend's summit in Helsinki," Eichel said. "European unity is always a compromise."

Fourteen of the 15 EU countries agree that interest income earned from international bonds should be included within the tax scheme, but Britain argues this would burden the financial markets with extra costs and drive business outside the EU.

Bolkestein and Niinisto concluded that there should be "arrangements specific to international bonds", but that Britain would not have to impose a withholding tax on interest payments or introduce an additional layer of administration.

"Instead, the UK would be able to satisfy the requirements of the directive by a simplified system of information reporting on the basis of its existing national legislation," the letter said. A commission spokesman told Reuters that it effectively boiled down to providing the names and addresses of savers rather than the amount of interest paid.

Niinisto said the revised plan tried to win Britain round by demonstrating London could avoid levying the tax if it agreed to provide information on investors receiving interest from Britain to other member States.

The revised plan says existing bond issues, even long maturity bonds, should be protected against any risk of early redemption, with a clear legal framework for paying agents.

EU finance ministers are due to meet in Helsinki late tomorrow to try and clinch a deal before Friday's summit.