Brussels, 12/12/2002 (Agence Europe) - On Wednesday the Ecofin Council failed to reach an agreement on the "financial package", despite around twelve hours of bi-lateral negotiations between the Danish Presidency, the Commission, Luxembourg, Austria, United Kingdom and Germany. Discussions have been postponed till the Council on 21 January under the Greek Presidency. Ironing out the details will continue on withholding tax rates on savings and the timetable for their application. The Commission will also have to re-establish contacts with the Swiss government. At the end of the meeting, the President of the Council, Thor Pedersen, explained that it was impossible to reach an agreement in the evening because some Member States needed more time. Mr Pedersen added that, "it isn't just a question of time and I expect an agreement in January".
The Council on 21 January is expected to return to two other points on the agenda of the special Ecofin Council which have not yet been tackled: energy taxation and co-operation between the tax authorities on VAT. Germany may lift its final reservations on energy taxation in the context of an overall agreement with the ultimate divergences on the directive having been smoothed out. Hans Eichel stated that, "I assume that an agreement on energy taxation will be achieved in January".
Most of the meeting focused on attempting to convince Luxembourg and Austria to apply a tax at source on savings income placed in their countries by EU residents at a level of 20% between 2004-2007 and 35% as from 2007, whereas the agreement of Member States had until now set these rates at 15% and 25% respectively. Luxembourg and Austria thought it unacceptable, while the United Kingdom and Germany supported it (see EUROPE yesterday p 7). Luxembourg and Austria are also refusing to apply a two-speed system, which would oblige them to put in place an automatic information exchange system starting in 2011, whereas Switzerland would only provide information "on request". Luxembourg Prime Minister and Minister for Finance, Jean-Claude Juncker declared, "The Swiss concessions as contained in the Presidency' compromise document are neither equivalent, nor identical to the savings income taxation system proposed by the Presidency to Member States and cannot therefore gain our acceptance on this compromise that would oblige us to permanently give up our banking secrecy while Switzerland is able to maintain theirs". Mr Juncker pointed out on Luxembourg television that Karl-Heinz Grässer was gradually bowing to the pressure from the Presidency and may break ranks.
An increase in rates is a condition posed by Switzerland for the adoption of "equivalent measures" to those put in place by the EU in the framework of the directive on savings taxation. The offer from Bern is based on a withholding tax of 35%, the rates of which will be shared 75%/25% between the country of residence for the saver and Switzerland. This 35% rate will be applied "under strict non-discriminatory conditions". In other words, Switzerland will have the right to apply the lowest rates if it considers that the country of residence of the saver is taxing the saver at a lower level. This formula was opposed, notably by Belgium.
Switzerland produced this proposal with the promise that the OECD convention on information exchange on demand was applied with more flexibility, which it currently does not do. It will also lift its reservations to Article 26 of this convention and provide banking information held by its tax authorities to the country of the saver but is still insisting that information focuses exclusively on "fraud and equivalence" and not on tax evasion, which is not recognised as a crime under Swiss law. The most recent discussions between the Commission and Switzerland focused on the definition of cases of "fraud and equivalence". According to the annex to the paper presented by the Presidency, Bern would be able to conclude agreements outlining cases of "fraud and equivalence" with all Member States and with the whole of the EU, underlining the "general concept" of fraud and embezzlement in a memorandum.
Frits Bolkestein, the Commissioner for tax matters explained in a press statement that progress in negotiations with Switzerland had been significant in laying the ground work for information exchange that has hitherto been supplied by legal channels and which can now go via administrative channels. He acknowledged on Wednesday to the press that it was obvious that some grey areas remained to be discussed with the Swiss. Mr Bolkestein, who will be grasping his pilgrim's staff in continuation of discussion with Bern at the end of January, indicated that "these discussions won't focus on all Swiss proposals but rather on the technical aspects that remain significant".
Austrian Chancellor, Wolgang Schüssel, declared on Thursday that, "now was the time that Switzerland and other third countries took another step".
The Swiss authorities announced in a communiqué that it was keen to keep its proposal which, "would regulate efficiently and fairly the problem of EU tax interests". The Swiss also point out that their proposal depended on the conclusion of other similar agreements with other third countries (USA, Andorra, Liechtenstein, Monaco, San Marino) and territories associated to the United Kingdom or the Netherlands. The Association of Swiss Bankers has called on their government not to give in. Their spokesman, James Nason, stated that, "It is clearer than ever that the EU has been divided…with regard to us, we think that the Swiss proposal is largely sufficient. There's no longer any margin left".
Adding grist to the Swiss mill, Luxembourg called on the Commission to present written commitments to third countries with which it will negotiate agreements, so that they adopt "equivalent" measures, particularly Liechtenstein, which Luxembourg thinks has so far made no commitments at all.