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International Money Marketing

August 1, 2002

 EU savings tax directive "dead", say US groups

The European Union's proposed savings tax directive, which envisages the automatic exchange of information between member states' tax authorities on investments held by residents in other EU countries, can be pronounced dead, according to a US pressure group, the Centre for Freedom and Prosperity.

According to Andrew Quinlan, president of the Washington-based CFP, sources in the administration of President George W. Bush have indicated that the US will not agree to implement "equivalent" measures to the information-sharing scheme set out in the draft directive. Quinlan quotes a senior US official as saying: "We are not signing the European Union's savings tax directive. There is zero support in the administration for signing." Under an agreement between EU leaders first set out at a summit in Feira, Portugal in June 2000, the associated and dependent territories of EU member states as well as six non-member countries - including Switzerland and the US - must all implement identical or comparable measures if the directive is to be adopted.

A number of EU member states, headed by Luxembourg and Austria, said they would not abandon their banking secrecy rules unless a "level playing field" was created by the adherence of the non-member countries.

The Swiss government also has indicated it is unwilling to give up banking secrecy, although instead of exchanging information it has offered to impose a withholding tax on investment income earned in Switzerland by non-residents.

The CFP was established in October 2000 to lobby against international initiatives on taxation such as the Organisation for Economic Co- operation and Development's campaign against harmful tax practices. Says Quinlan: "Defeat of the EU savings tax directive was our number one priority. This decision is a victory for tax competition, financial privacy and fiscal sovereignty."

As currently drafted, the directive would require EU countries to put in place a system of automatic exchange of information on non- residents' investments by the beginning of 2005, although Austria, Belgium and Luxembourg would be allowed instead to impose a withholding tax of 15 and later 20 per cent for an eight-year transition period. Three quarters of the tax collected would be transferred to the investor's country of residence.

Over the past two months Jersey, Guernsey and the Isle of Man have agreed to the exchange of information proposals, on condition that all others called on to follow suit in fact do so.

The Luxembourg government has called for EU member states and financial centres to be given a choice between exchanging information and imposing a tax on non-residents' income.

 

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