Reproduced with permission from Daily Tax Report, No. 147, pp. G-12 (July 31, 2002).

Copyright 2002 by The Bureau of National Affairs,Inc. (800-372-1033).
BNA's home page is http://www.bna.com

No. 147
Wednesday July 31, 2002 Page G-12 
ISSN 1523-567X
Tax, Budget & Accounting

 International Taxes
Thomas Mulls Hearing on EU Savings Tax,
Nonresident Alien Interest Reporting Rules

House Ways and Means Committee Chairman William Thomas (R-Calif) recently told the Bush administration he is concerned about the European Union's controversial savings tax directive and about Internal Revenue Service guidance requiring banks to report interest paid to nonresident aliens.

In a July 22 letter to Treasury Secretary Paul O'Neill, Thomas asked for the administration's perspective on the two issues and said he is considering holding hearings on both.

The EU directive, which calls for detailed information exchanges between countries on the financial activities of nonresidents, "appears to be a clear attempt by the European Union to form a tax cartel whereby high tax rates can be easily maintained," Thomas said in the letter, publicly released July 30.

"Participation in this cartel could cause capital flight from the United States," Thomas said in the letter, released July 30. "In addition, this initiative would appear to stifle the global competitive forces that have led to lower tax rates around the world," he said.

U.S.-EU Contact Continuing

The letter was released days after Treasury and the European Commission July 24 said they continue to be in contact regarding the 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 White House official said the directive has no support in the administration.

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 (143 DTR G-10, 7/25/02).

New Rule Proposal From IRS

In the July 22 letter, Thomas said he also is concerned about proposed IRS regulations (REG-126100-00) that would require banks to report interest paid to nonresident aliens (11 DTR G-8, L-10, 1/17/01).

IRS July 30 withdrew those proposed rules (REG-126100-00) and instead proposed a narrower rule (REG-133254-02) that would require interest reporting only for accounts of nonresident aliens that reside in certain designated countries (see related report in this section ).

Thomas said he is worried that this proposal also would cause a capital drain from the United States as investors move their money elsewhere.

"Furthermore, I am concerned that this significant change in our tax policy would hinder our efforts to reform the tax code to promote greater efficiency and growth," Thomas said. He added that questions exist about whether the rules adequately reflect congressional intent.

By Alison Bennett

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

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