Taxation – Withholding tax row erupts

Gordon Brown has poured scorn on European Commission plans to introduce a 20% tax on income from EU-based financial instruments.

In a closed meeting between ministers in Vienna at the weekend, Brown is understood to have told European tax commissioner Mario Monti such plans would be damaging to UK financial services.

A Treasury spokesman said Brown had gone ‘with an overall concern that proposals do not prejudice financial services in this country’.

Last week, Monti refused to offer exemption from the tax for eurobonds in a meeting with financial institutions in Brussels. He said exemption would lead to ‘an artificial distortion in the allocation of savings between different kinds of debt instruments’.

He attacked arguments by the eurobond industry that the directive could trigger gross-up provisions which would lead to early redemption. He said: ‘The clause in most eurobond issues applies to the agent and not the issuer and so the ‘gross-up’ clause appears to be very limited.’

UK insurance giant Prudential, which attended last week’s meeting, warned that the directive ‘should take into account the need to preserve the competitiveness of European financial markets in a global context.’

ACCA’s senior technical officer, Chas Roy-Chowdhury, said the directive had been accepted ‘fatalistically’ by institutions. He said: ‘They prefer the onerous task of withholding tax, preferably at a lower rate than the 20% proposed, rather than mountains of information to authorities.’

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