EU Agrees Finally on Savings Tax

On January 21, 2003, the financial ministers of the European Union finally reached agreement on the savings tax directive after 13 years of negotiations. The deal has importance for international tax enforcement, financial confidentiality, withholding tax, and sharing of revenue. The agreement allows Luxembourg, Austria and Belgium the right to impose a withholding tax rather than exchange information on non-residents savings, as the other 12 countries have agreed, and to retain their secrecy during this period. The deal provides that 12 EU members and their overseas territories have agreed to exchange information on non-residents savings. This will effectively terminate any banking secrecy from 2004. However, Luxembourg, Austria and Belgium have the right to keep their secrecy and impose a withholding tax starting at 15 per cent and rising to 20 per cent in 2007 and 35 per cent in 2010. In 1997, the U.K. blocked a prior agreement because it said the proposed agreement would damage the City of London?s eurobond market. Now, Gordon Brown, Britain?s finance minister, has supported the latest proposal although it does not meet his initial damages for exchange of information for all 15 EU members and Switzerland. The resolution of the EU saving tax issue will enable the EU to impose pressure on the OECD to implement its harmful tax practices initiative although its success will depend on the resolution of the complaints from the three above-mentioned jurisdictions.