Compromise reached on EU savings taxation

All fifteen EU states agreed to a compromise put forward by the Portuguese presidency, which will allow nations to delay scrapping banking secrecy.

The deal allows a withholding tax to be introduced in some countries in conjunction with the information exchange programme first put forward by the UK.

Austria held out against the agreement, which was seen as an attempt to force the EU to lift sanctions imposed after the election of the country’s far-right Freedom party.

The agreement marks the end of a two-year impasse between EU finance ministers and will be seen as a victory for the UK.

Britain – fearing the damage the EU’s plans could have on the City’s lucrative eurobond market – opposed plans put forward for a minimum withholding tax on non-resident savings, which would have seen taxes on savings interest treated in the same way across the EU.

In February, British representatives suggested a alternative system of automatic information exchange, involving routine disclosure of information from payers of interest to their domestic tax authority, which would then be passed on to tax authorities in other countries.

Initially there was resistance to the British scheme from a number of countries, including Portugal and Luxembourg. But opposition to the plan wilted under heavy EU pressure.

The EU will now have to work on establishing agreements for similar information exchanges with non-EU countries such as Switzerland and the US. on the savings tax row

24 September 1998 – European tax plans lashed

1 October 1998 – Withholding tax row erupts

17 November 1998 – Treasury says no withholding tax

UK falls out with Europe after digging heels in over withholding tax

14 December 1999 – UK veto on tax issues under threat from EC president

25 February 2000 – Primarolo moves to break European deadlock over withholding tax

1 March 2000 – British attempts to break impasse over withholding tax blocked by EC chief

7 April 2000 – Boost for withholding tax alternative

10 April 2000 – EU swings away from withholding tax

20 May 2000 – No end in sight for withholding tax deadlock

5 June 2000 – Finance ministers try to break impasse

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