Boost for withholding tax alternative

Disputes over the tax directive, which proposes a minimum withholding tax on non-resident savings interest to stamp out evasion, have soured relations between the UK and other EU countries. The government has resisted the tax fearing the damage it could have on the City’s lucrative international bonds market.

In February, paymaster general Dawn Primarolo attempted to ease the impasse by suggesting a system of automatic information exchanges. This system would involve routine disclosure of information from payers of interest to their domestic tax authority, which would be passed on to other tax authorities.

Initially the idea went down badly, with European Commissioner Frits Bolkestein criticising the scheme on a recent visit to the UK.

He suggested that at least two member states would have major difficulty accepting the UK government’s solution.

But commission spokesman Jonathan Todd, yesterday suggested the proposals might be accepted.

‘If member states felt they could accept a full exchange of information in the long term, the commission could live with it,’ he said.

EU finance ministers are due to discuss the tax issues at a meeting in the Portuguese capital Lisbon this weekend and it appears that the British alternative to the 20% withholding levy will definitely be discussed.

Agreement on withholding tax by June, EU finance ministers tell UK

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

Primarolo moves to break European deadlock over withholding tax

British attempts to break impasse over withholding tax blocked by EC chief

Related reading