Brussels, 16/11/2000 (Agence Europe) - The end of the French Presidency looming, a further "tax marathon" is on the cards for the European Union's Finance Ministers in view of reaching a compromise so sought after on the tax on savings (withholding tax). The tax experts of the Fifteen completed the technical aspect of negotiations on the subject on Thursday, "without our really being able to speak of a success", said one of them. They in fact parted without managing to draw up an agreed text to submit to ministers. Several crucial questions will require political arbitration. Issues that foremost concern those Heads of Government who, initially, refused to take part in an system of information exchange between tax administrations. The most concerned, Luxembourg, which has dug in its heels and is already riling against the French proposals.
The finance Ministers will meet Sunday 26 November in the evening, and there is already talk of further meetings on the fringe of the European Summit of Nice, early December. France is preparing to submit to them a "Presidency Report" (and not from the Tax Group) the contents of which risk annoying several of its partners. The goal of the directive is to assure a minimum of taxation on interests gained by European nationals on savings money they have invested on another Member State to the one in which they live. According to a compromise reached in June, the Fifteen will have to implement a generalised system of information exchange between tax administrations, by the year 2010. Between now and then, the Presidency provides for States automatically communicating information at their disposal to their partners, except for Austria, Luxembourg, Belgium, and, should they decide so, Greece and Portugal. These States would receive information concerning their nationals and, in exchange, implement a 25% non-discharged withholding tax on the savings of non-residents. They would pay 90% of the revenue of this tax to the State of residence of the investor, retaining only 10% to cover administrative costs. France also proposes: a) a wide field of application for the directive, covering revenue from international bonds, interests gained or capitalized, zero coupon bonds, revenue distributed by investment of capitalization funds, as long as they are connected to proof of debt, and similar revenue stemming from bodes like partnerships or trusts; b) just as wide a "grandfather clause" (by which revenue from the different types of bonds issued before 1 January 2001 would not be covered by the directive).
"It is obvious that these proposals constitute a negotiating tactic", said a European diplomat. "By proposing a withholding tax of 25%, whereas the European Commission was providing for 20%, France is retaining the possibility of reaching a final compromise of 20 or 18%, just like it could review the share-out of this revenue along lines that would be a little less favourable for the State levying the tax". On thing is certain, a lengthy and difficult debate awaits the Fifteen still. At the end of last week, Luxembourg Prime Minister, Jean-Claude Juncker already demanded important modifications to the proposals of the French Presidency.
"90% of the difficulties only concern the transitional regime (whereas the exchange of information now raises but few problems) and two delegations seem to be the most intransigent: Luxembourg and Belgium", a European source commented. According to the latest debates between experts on key issues, some ten Member States could agree to 25% being withheld at source, but those States most concerned (those that will implement it) recommend a lower rate. Belgium proposes 15%, level that it applies to its own nationals; Luxembourg a 10% discharged tax. A dozen States could agree to a "90-10%" share-out of revenue, but Luxembourg and Belgium would like to retain a large cut. Belgium is also pleading in favour of a narrower "grandfather clause". Finally, Luxembourg rejects the inclusion of statutory investment funds (companies that invest in bonds and distribute dividends and coupons but not interest) in the directive's field of application.
The ongoing tax negotiations relate to a "package" of measures of which savings is, in fact, bur one chapter. The Fifteen have however broadly focussed their work this semester on this issue, in the sense that the main mission handed to the French Presidency by the Feira Summit, in June, was to find agreement on the "essential content" of the directive on savings. The other chapters pose fewer problems.