A historic compromise agreement has been reached within the European Union on rules governing the taxation of savings invested abroad.
The deal, agreed to by European finance ministers, will see EU citizens pay the same tax rate on income invested overseas, something which has taken 13 years to come to fruition.
However, Luxembourg, Austria and Belgium have been made exempt from this and will instead levy a withholding tax of 15% on savings, which will climb to 20% in 2007 and to 35% by 2010.
Switzerland will charge taxes at similar rates, and must still approve the plan, something it is expected to do once technical problems have been resolved.
The remaining EU member states will levy taxes at the same rate on savings and there will be a free exchange of information between tax authorities – an idea strongly supported by Gordon Brown, and aimed at combating tax evasion, fraud and money laundering.
However, the compromise deal will anger the Organisation of Economic Development and Co-operation, who has claimed that such an arrangement – granting special concessions to Luxembourg in particurlar – will hamper its drive to stamp out harmful tax practices in so-called ‘tax havens’.