Lisbon bids to clinch savings-tax deal

Date: 27/01/2000

By Tim Jones

PORTUGUESE Finance Minister Joaquim Pina Moura has chosen his top tax enforcer to head a new panel tasked with breaking the deadlock over the EU's three-pronged tax harmonisation package.

Diplomats view the appointment of State Secretary for Fiscal Affairs Manuel Baganha, whose key mandate at home is to drive through a tough anti-evasion programme, as a sign of the presidency's determination to clinch a Union deal over taxes on savings, profits and internal company dividends.

Pina Moura's predecessor in the EU economic policy hot-seat, Finnish Finance Minister Sauli Niinistä, was unable to get an agreement in time for the mid-December Helsinki summit, with the British government refusing to drop its long-standing demand that the scope of the EU-wide savings tax be limited to cross-border bank deposits and ignore foreign-currency debt ('eurobonds').

The summit agreed instead that a "high-level working group" should be set up to decide how best to implement the principle that "all citizens resident in a member state of the European Union should pay the tax due on all their savings income". That committee will be formally established by finance ministers at their meeting next Monday (31 January).

The European Commission's original savings-tax plan would allow governments to choose between withholding 20% of interest paid to non-resident savers or oblige their banks to inform non-residents' home-state tax authorities about returns on their investments.

The UK has signalled a willingness to share information on interest paid with other EU tax authorities, but wants all eurobonds exempted and specialist 'paying-agent' banks freed from any extra administrative burden.

Baganha's working group will negotiate on the basis of a compromise paper put together by Niinistä and Internal Market Commissioner Frits Bolkestein in December which would limit the obligations on UK-based banks to those laid

down under a nine-year-old EU law designed to combat money laundering. This requires banks taking deposits from foreign EU nationals to check their identification when an account is opened, when a single transaction or linked transactions exceed €15,000, or when they suspect money laundering.

Even this failed to win over British Finance Minister Gordon Brown. However, diplomats believe that Lisbon may try to water down the savings-tax plan even more to open what Portuguese Prime Minister António Guterres described earlier this month as a "window of opportunity".

Some national tax policy negotia-tors are convinced that Baganha will allow Union governments to agree identification requirements bilaterally while, at the same time, attempting to draw up a common code of rules for exchanging information.

"That looks like the only possible way the British could be won over but it runs the major risk of alienating other member states," said one diplomat close to the talks.

Portuguese Finance Minister Joaquim Pina Moura has chosen his top tax enforcer to head a new panel tasked with breaking the deadlock over the EU's three-pronged tax harmonisation package.