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The Bureau of National Affairs

No. 143
Thursday July 25, 2002 Page G-10
ISSN 1523-567X
Tax, Budget & Accounting

International Taxes
Treasury, EU Still in Contact on Savings Tax;
Interest Group Asserts White House Rejection

The Treasury Department and the European Commission July 24 said they continue to be in contact regarding a controversial EU cross-border savings tax directive, despite assertions by one interest group that the Bush administration has rejected participation in the initiative.

The Center for Freedom and Prosperity July 24 said it was told by "several senior Bush administration sources" July 23 that the United States has no plans to sign the EU directive, which calls for detailed information exchanges between countries on the financial activities of nonresidents.

Treasury spokeswoman Tara Bradshaw issued a statement saying the administration has "only had technical discussions about some specifics of the proposal at the staff level." She declined comment on the assertions made by CFP that a highly placed White House official said the directive has no support in the administration.

While Treasury Secretary Paul O'Neill sees information exchange agreements as a priority, Bradshaw said, O'Neill also has "made clear that the U.S. has no interest in participating in any effort toward tax harmonization and that protection of the confidentiality of taxpayer information is paramount."

Within these parameters, the spokeswoman said, Treasury will "continue to expand our tax information exchange relationships with significant financial centers."

EU Still Confident

The European Commission said July 24 that it was in regular contact with the Bush administration on the savings taxation issue and that it was confident an agreement on information exchange of cross-border savings incomes would be reached.

"Discussions on the technical level were held as recently as last week," said Commission spokesman Jonathan Todd. "We are confident that we will be able to reach a system for the exchange of information on cross-border savings income that is mutually satisfactory for both sides."

Taxation Commissioner Frits Bolkestein met with Treasury Deputy Secretary Kenneth Dam on the issue in May. Following the meeting, a joint statement by the two officials stated that both recognized the "the importance of addressing tax evasion" and that methods for an information exchange system were discussed.

The statement also said that there was an agreement to "accelerate discussions at the technical level in order to bring the important matter forward."

The Commission said the technical discussions held in Washington, D.C., during the second week of July were a result of the meeting between Bolkestein and Dam.

EU diplomats said they are confident that an agreement with the United States will be reached because of the emphasis that the tracing of terrorist funds has taken on in Washington, D.C. "The Bush administration has pushed hard for European cooperation in tracking terrorist funds," said an EU diplomat, who spoke on the condition of anonymity. "There is an obvious link between tax evasion and money laundering. Both sides need each other."

Status Unclear

While the status of further talks between the United States and the EU remained unclear July 24, CFP officials appeared convinced the Bush administration would not participate in the directive.

"This decision is a victory for tax competition, financial privacy, and fiscal sovereignty," said CFP President Andrew Quinlan.

Regardless of the state of discussions with the United States, the Commission is becoming increasingly pessimistic about the fate of the EU cross-border savings tax. That is because it has failed to make any progress with Switzerland on an information exchange system. Switzerland has ruled out any deal that would require to loosen its bank secrecy laws.

The Commission will hold technical discussions with Switzerland in August. The EU executive body is hopeful that Switzerland might agree to a limited information exchange system where Swiss authorities would provide information about individuals if EU tax authorities requested it.

Switzerland has offered to impose a tax on savings income of nonresidents and share the revenue. However, Luxembourg and Austria, which reluctantly agreed to the EU savings tax plan in 2000--but only on the condition that a similar agreement is reached with third countries--insist that Switzerland must give up its bank secrecy laws as they would be required to do under the directive.

By Alison Bennett and Joe Kirwin (Brussels)

Copyright © 2002 by The Bureau of National Affairs, Inc., Washington D.C.


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