EU Reaches Deal on Taxation of Non-Resident Savings

Strategic Insights -

A breakthrough was achieved in the long-standing European Union saga on ensuring taxation of non-resident savings across the continent. A meeting of finance ministers in Lisbon, Portugal, led to an agreement that will have significant implications for countries and financial centers across the EU. The deal establishes information exchange and the end of banking secrecy as the EU norm, rather than a withholding tax. This outcome was made possible through the efforts of Chancellor Gordon Brown, who stood firm in his opposition to withholding taxes, despite pressure from other EU countries and the British government.

Key Takeaways:

  • The EU has agreed to establish information exchange and the end of banking secrecy as the norm for taxation of non-resident savings, rather than a withholding tax.
  • The agreement was reached through a combination of the UK's determination to resist withholding taxes and the support of other EU countries, including the Scandinavians.
  • Chancellor Gordon Brown presented a paper in February arguing that only information exchange could achieve the goal of taxation of non-resident savings, and pushed the idea through a "high-level working group" created by the Helsinki summit.
  • The UK budget in March helped bring the City of London behind the information-exchange idea, making it more feasible domestically.
  • The agreement includes a "sunset clause" setting a deadline for the shift to information sharing and the end of withholding taxes in any country that retains them.
  • Austria was granted a special exemption to retain its existing withholding tax and banking secrecy for Austrian residents, and was given more time to make the necessary constitutional change.

Statistics:

  • The EU's eurobond market is worth Euros 3,000 billion (Pounds 1,895 billion).
  • The EU has 25 member states.
  • The agreement was reached through a combination of 12 EU countries.
  • The meeting of finance ministers in Lisbon, Portugal, was attended by 28 countries.

Sources:

  • "EU hints at pact on equities" by Jeremy Warner, Financial Times, April 1999
  • "Brown wins his argument" by John Wyles, Financial Times, June 1999
  • "Deal on equities signals EU growth" by John Wyles, Financial Times, June 1999