Brussels, 22/01/2003 (Agence Europe) - "The Council was able to unanimously adopt a major agreement in order to ensure more equitable tax conditions throughout the European Union", Greek Minister for the Economy, Nikos Christodoulakis, was pleased to note on Tuesday after afternoon negotiations allowing the Ecofin Council to reach a political agreement on three elements of the "tax package" (see yesterday's EUROPE, p.11). The final adoption of the agreement, in March this year, will, however, depend on Switzerland's reaction. The Commission is to resume contacts with Switzerland this week.
In the meantime, Frits Bolkestein said he was "delighted" with the political agreement concluded after years of negotiations. Luxembourg Prime Minister and Finance Minister Jean-Claude Juncker was "full of satisfaction" after his victory, since he obtained de facto, against British opposition, a return to the "co-existence" system between exchange of information on savings income that will be set in place by twelve Member States, and withholding, which will allow Luxembourg, Austria and Belgium to keep their banking secret as long as Switzerland keeps its own.
The political agreement therefore foresees that twelve Member States will set in place, on 1 January 2004, an automatic information exchange system between their tax administrations on the taxation of savings by residents of other Member States.
Luxembourg, Austria and Belgium will, for their part, apply withholding on savings interest by way of 15% as of 1 January 2004, 20% from 1 January 2007 and 35% from 1 January 2010. The revenue from this taxation, which allows the identity of savers not to be disclosed, will be shared out with 75% for the State of residence of the saver and 25% to the countries where the savings are made. These three States will only go on to the automatic exchange of information "if and when" the Council concludes the following by unanimity: 1) an agreement with Switzerland, Liechtenstein, San Marino, Monaco and Andorra for exchange of information upon request according to modalities defined in the OECD 2002 agreement on the exchange of tax information, together with withholding; 2) the United States undertakes to carry out information exchange as defined by the OECD 2002 agreement.
In the context of negotiations with Bern, Switzerland will be called upon to conclude an agreement providing for: 1) retention and withholding identical to that applied by Luxembourg, Austria and Belgium (15% in 2004, 20% from 2007 and 35% from 2010). In cases where a taxpayer declares his interest income obtained from a Swiss paying agent to the tax authorities in his Member State of residence, that interest income should be subject to taxation there at the same rates as those appolied to interest earned domestically. The 35% withholding rate will remain also after Switzerland has adopted exvhange of information on the OECD standard, the Council states in its conclusions; 2) sharing of the retention tax revenue at 75%/25% between the States of residence of the savers and Switzerland; 3) a review clause stipulating that the parties must consult each other at least every three years or at the request of the contracting parties to verify whether it is necessary to make technical improvements in the way the agreement works and, in any event, when Luxembourg, Austria and Belgium move onto the automatic information exchange system; 4) information exchange upon request for all criminal or civil cases of fraud or similar misbehaviour on the part of taxpayers. "This part of the agreement may be implemented through bilateral agreements between Member States and Switzerland", the Council's conclusions state.
The EU is expected to conclude "similar agreements" with Liechtenstein, Monaco, Andorra and San Marino. The Commission is also expected to pursue negotiations with Switzerland and other third countries to reach automatic information exchange, and to report back to the Council before 2007 on the result of such negotiations.
As far as the code of conduct on corporate taxation is concerned, the Council notes the report by the Primarolo Group on 66 harmful tax practices identified in Member States and their associated territories. It calls on the group to present a report in March 2003 on dismantling these regimes. If the measures for replacement or review of these regimes are considered inadequate, the Council may call on the Member States and their dependent territories concerned to implement additional changes before January 2004.
The Council agrees that some harmful practices could be extended until December 2010 for "coordination centres" in Belgium, "foreign income" in Ireland, 1929 "holding companies" in Luxembourg, international financing in the Netherlands, as well as extension to 31 December 2011 for Madeira's free economic zone, for Portugal.
Whereas the initial compromise of the Greek Presidency only provided for discussing the dismantling of harmful measures at the end of 2003, this examination has been brought forward to March at the request, notably, of Belgium. Belgian Finance Minister Didier Reynders insisted on the fact that savings tax and company taxation were a "package" and that the March Council would therefore have to decide on these two chapters. Belgium, moreover, insists on the prolongation of its tax scheme for "co-ordination centres".
The Council agreement of November 2000 on the third element of the package, the "interests and dividends" directive, was confirmed, while awaiting the final decision of the European Council of March.
Commission optimism over negotiations with Switzerland
The Commission's negotiating team will resume negotiations with Switzerland this week already to conclude an agreement on the basis of the compromise defined by the Council, said Commissioner Frits Bolkestein at the end of the meeting. While "refusing to speculate" on the outcome of these talks, he said he was optimistic. He stressed that Swiss federal advisor Kaspar Villiger had "said on several occasions that his government agreed to combat the possibilities of tax evasion". Switzerland, however, was asking for a level of withholding tax identical to that in force in the State of residence of the saver so as to avoid discrimination, which the Commission refuses. If the saver does not want to declare his or her revenue to their State of residence, "there has to be a penalty", Commissioner Bolkestein pointed out.
The Swiss Federal Department of Finances reacted positively Tuesday evening, assuring in a press release that "at first sight, the solution adopted (by the Fifteen) complies with the essential points of the Swiss stance and allows to resolve in a durable manner, in the respect of our legislation and preserving banking secrecy, the problems met by the EU in the field of the tax on income on savings". "A certain amount of optimism is thus allowed", Bern assures, awaiting a more in-depth assessment of the Fifteen's agreement. Switzerland does, however, stress that "for the agreement on the savings tax to be concluded, first the outstanding problems in other issues under negotiations must be settled and that the respective bilateral agreements be finalised".
Luxembourg Prime Minister Jean-Claude Juncker, for his part, stressed that the "agreement with Switzerland is an integral part of the Council agreement". If Switzerland refuses to implement a withholding level of 35% from 2010, Luxembourg, Austria and Belgium would not be held to do so either, he insisted. Likewise, if Switzerland refuses to adopt norms for information exchange on demand defined by the OECD agreement of 2002, these three Member States would not cross over to automatic information exchange, Jean-Claude Juncker recalled. While he too refuses to "speculate on Switzerland's refusal", he did not conceal his doubts on the possibility of Bern agreeing to both applying a withholding tax of 35% and participating in information exchange according to the OECD standards that would amount to "ending its banking secrecy".
Ms. Randzio-Plath calls for majority voting for tax
The chair of the European Parliament's Economic and Monetary Committee, Christa Randzio-Plath, welcomed the Council agreement, while stressing that it had taken 14 years to reach it, which demonstrated that "the EU must alter the way of adopting tax measures necessary for the smooth running of the internal market". She whence calls on the European Convention to propose that these decisions be adopted through a qualified majority.