Brussels, 23/11/2000 (Agence Europe) - All eyes will be on Luxembourg when, on Sunday evening in Brussels, a session of the Ecofin Council will open, devoted to savings tax. The key for an agreement on the negotiating directive now seems to be in the hands of Jean-Claude Juncker, Luxembourg Prime Minister, also responsible for financial issues. The very important technical work achieved in recent months has in fact allowed majority views to be reached on most of the issues addressed. "On Sunday, political pressure will be on Luxembourg", explains a European diplomat. "Either it agrees to negotiate a compromise and the meeting could then last a long while, or it states that the time is not right and an exceptional Ecofin Council will be convened in Nice, on the fringe of the Summit, from 7 to 9 December.
The Finance Ministers received the mandate, from the Feira Summit in June, to reach an agreement on the "essential content" of the savings directive. The aim is to ensure a minimum of taxation on interest earned by European nationals on savings in a Member State other than their own. According to the compromise reached at that time, the Fifteen should apply a generalised system for exchange of information between tax administrations, on the horizon of 2010. Between then and now, the French Presidency proposes that the States should automatically communicate to their partners the information available to them, except for Austria, Luxembourg, Belgium and, if their governments so decide, Greece and Portugal, which would apply a 25% discharge of tax liability on the savings interest of non-residents. The Council will have a report from the Presidency which opted for positions very distant from Luxembourg's demands (see EUROPE of 17 November, p.7). "One way to keep away from bargaining margins", consider the negotiators.
If Luxembourg agrees to come to a compromise, arbitration is essentially expected on two points: a) the rate of withholding tax - a majority of delegations are in favour of at least 20%, and Luxembourg for 10%; b) the scope of the directive - a majority urges for a very broad scope of application, and Luxembourg for narrow application, mainly excluding statutory investment funds. The counterpart to a broad field of application could lie in an equally broad "reasonable precautions clause". This is what the Presidency proposes, providing for exclusion from the directive of all obligations and proof of debt dating back to before 1 January 2001.
Alongside Luxembourg, Belgium recently showed itself to be more reticent. This position could, however, be largely tactical. An agreement on savings would put the "code of conduct on corporate taxation" (second volet of the same tax package) back on the agenda, for which work has recently been making little headway, and on which Belgium has reservations. Several of its tax regimes, including the famous coordination centres, appear on the list of 66 measures said to be harmful and that should be dismantled. It is, however, possible that the Belgian position will become more flexible at ministerial level. "Didier Reynders will not block an agreement", one negotiator said.
The same affirmation is not true of Jean-Claude Juncker, who recently had very harsh words to say about the French project. Many bilateral contacts are scheduled until Sunday (after Chancellor Schröder and German Finance Minister Hans Eichel, Jacques Chirac was on visit to the Grand Duchy last night) but Luxembourg could be tempted to take the debate to Nice. "One can still hope for an agreement", says one diplomatic source, "as Luxembourg has many interests to defend in the reform of the European institutions and cannot win on everything". The agreement recently concluded by the Luxembourg banks with the United Sates has, no doubt, weakened the position of the Grand Duchy in European negotiations (Ed.: this agreement mainly provides for Luxembourg banks, as of 1 January 2001, to transmit to tax authorities on the other side of the Atlantic the identity of American clients who open an account with them, if they hold American assets), and no delegation may take refuge behind technical pretexts in order to block debates.
"Pressure will therefore be very strong as failure could mean the end of the tax package and several states (Germany, France, Italy) absolutely hope for an agreement", predicts one European source.