Luxembourg withholds approval for tax change

Date: 30/01/1997

By Tim Jones

LUXEMBOURG will continue to take the heat from its neighbours and veto the imposition of common European taxes on capital.

Prime Minister Jean-Claude Juncker, who came under verbal attack from German and Belgian finance ministers earlier this week for employing “unfair” taxation practices, has vowed to stand his ground.

“There is no question of our agreeing to a new EU-wide withholding tax if there is going to be a total reluctance for harmonising other parts of the European tax landscape,” he said in an interview with European Voice.

At this week's ministerial gathering, German Finance Minister Theo Waigel complained about tax havens which were undermining the single market and eroding government revenues.

Tax evasion has become a hot issue in Germany following the conviction of Peter Graf, the father of tennis star Steffi, and experts believe that Germans have shifted as much as 150 billion ecu into banks in Switzerland, Austria, Liechtenstein and, above all, Luxembourg.

Keen to recoup this lost 10 billion ecu in potential tax revenues, Waigel promised a war against tax havens in Europe and a renewed campaign for harmonised withholding taxes on interest paid to foreigners.

But Juncker insists that such a common European rule would have to apply everywhere in the EU, saying: “There is no question of Luxembourg introducing such harmonisation if it does not also apply to, for example, the Channel Islands [a UK tax haven off the French coast].”

Internal Market Commissioner Mario Monti is planning to revive an eight-year-old proposal to harmonise capital taxes - combining a common minimum rate with an obligation by banks to provide information to tax authorities - at the next meeting of the member states' high-level taxation group.

Luxembourg has always opposed this idea, claiming that it is better discussed within the Organisation for Economic Cooperation and Development, so as to involve Switzerland at the very least.

Little has changed. “If we introduced an EU-wide withholding tax, this would substantially harm the whole European Union because it would lead to an evasion of capital outside the borders of the EU - in the direction of Switzerland and elsewhere,” said Juncker.

In recent years, several EU countries have been allowed to create special low-tax zones, including Corsica, Madeira, Santa Maria and Trieste; while the special status granted to Dublin Docks has ironically succeeded in enticing away some of Luxembourg's 220 foreign banks.

“I have never heard people say that those parts of the Union which are not subject to the normal rules would give up their special regimes,” said Juncker. “But if they are saying they will give them up, then we will be prepared to discuss it fairly and constructively.”

Instead of this one-sided approach, Juncker wants Monti's high-level group to identify all the taxation policies which are threatening to fragment the single market. These include taxes on energy use, corporate tax breaks to encourage inward investment and 'fiscal engineering' carried out by governments as part of their industrial policies.

“We simply want to fix the list of tax areas which have to be harmonised and introduce all these common European rules on the same day,” said the prime minister.

In his view, it will not be enough to restrict this debate to the governments within the single currency zone grouped together in the so-called 'stability council'. “We would have to bring into this discussion all those countries which are temporarily outside the monetary union,” he said.