ECONOMY

Ecofin agreement on how to clamp down on tax dodgers

After more than a decade of tough negotiations, the European Council of Finance Ministers yesterday agreed about how to clamp down on tax-evaders. The deal by the EU finance ministers cleared the way for a hard-fought accord between the EU nations and non-EU tax havens, notably Switzerland, to force wealthy savers to pay tax on the interest they earn outside their home country. Ecofin Chairman Nikos Christodoulakis, Greece’s economy and finance minister, yesterday hailed the adoption of the tax package. «I consider the adoption of the tax package, along with the agreement on the taxation of energy, to be two major contributions of the Greek presidency, as they create a whole new environment in relation to market integration.» The savings tax deal is designed to get wealthy, private investors to pay tax on interest income from savings accounts held in the EU and outside the union. In 12 EU nations, banks will report interest earned to the account holders’ home countries whose governments must then collect the money. Belgium, Austria and Luxembourg will directly levy the withholding tax and pass it on to other EU governments, enabling them to guard their banking secrecy rules. Non-EU nations will also levy the tax and give 75 percent of it to the country of residence of the bank account holders without providing his or her name. This would respect, for example, Switzerland’s bank secrecy rules. EU officials plan to complete negotiations with Switzerland soon and hope this will then trigger agreements with other non-EU tax havens, such as Monaco, Liechtenstein, Andorra and San Marino. The planned starting date has already been pushed back at least a year, to January 1, 2005, because European banks said they needed more time to comply with the new rules. But even that date will only become effective if the 15 Ecofin ministers agree unanimously six months beforehand that Switzerland and other countries, including the United States, have adopted measures that ensure their banks won’t gain an unfair advantage over EU competitors forced to adopt the new rules on foreign savers. In a strange demonstration of how European Union issues are interconnected, the agreement was passed only when Italy won leniency for Italian dairy farmers who owe hefty fines for exceeding EU milk quotas. Italy’s objections, and the way it had sought to get its concessions, had angered other European leaders, notably French President Jacques Chirac. «We managed to reach an agreement that provides… for a period of repayment of 14 years, starting January 1, 2004,» Christodoulakis said, referring to Italy’s farmers. In other business, Ecofin called on France to improve its budget deficit by 0.5 percent of its gross domestic product by next year. Finance ministers also agreed that the second half of 2003 will see a modest recovery in economic growth across Europe. They also said a strong euro benefitted European economies.