Finns bid to limit savings tax exemptions

Date: 14/10/1999

By Tim Jones

THE Finnish presidency is attempting to scale back ambitious British plans to exempt all foreign-currency debt dealt through specialist trading clubs from a common EU-wide system for taxing savings income.

Helsinki fears that a blanket exemption for eurobonds traded through 'clearing systems' would effectively eliminate these financial instruments from the 20% tax altogether and discriminate against bank depositors. "The whole point of this package is to prevent favouring one form of investment over another," said a diplomat. "The British ideas are an invitation to wealthy investors to move into bonds."

Negotiators from most other EU governments have expressed scepticism about the scope of the exemption called for by the UK for bonds traded through clearing houses - clubs set up to ensure the smooth functioning of the bond market by settling very short-term debts between institutions.

Many fear it could scupper the chances of EU leaders meeting their deadline for agreement on an overall tax package at their Helsinki summit in December.

Finance Minister Sauli Niinistö has convened a one-off meeting of ministers' representatives before the end of this month to try to overcome the key obstacles to the package, which not only includes the savings levy, but also a hit-list of predatory corporate tax breaks.

Under the European Commission's original plan, member states would set a minimum tax rate of 20% to be withheld from interest paid to savers who invest their cash outside their own country or require banks to inform savers' home-state tax office of the interest they have paid to them.

But UK Finance Minister Gordon Brown is demanding protection for the €3-trillion London-based market for eurobonds. In a position paper circulated to his fellow finance ministers last month, Brown signalled his willingness to accept a common system for taxing savings as long as all existing bond issues, bonds traded through clearing systems and those with a minimum paper value of €40,000 were exempted.

"Everybody is hoping that this is just a negotiating position," said another diplomat. "We all understand the special problem of the City of London, but that does not mean we are going to give a total exemption to eurobonds."

The Finns are still searching for a date for the one-off 'political-level' meeting, which will follow a gathering of top tax officials next Tuesday (19 October). Niinistö is also hoping to receive written reports from the British and Dutch governments setting out how equivalent measures could apply to their tax havens in the Channel Islands and the Caribbean.

Diplomats say Brown is making better progress in persuading fellow ministers and new Internal Market Commissioner Frits Bolkestein of the need to exempt all bonds issued before the legislation takes force by inserting a 'grandfathering clause'.

The Finnish Presidency is attempting to scale back ambitious British plans to exempt all foreign-currency debt dealt through specialist trading clubs from a common EU-wide system for taxing savings income.