Martin Walker in Brussels
The European Union is to send a high- powered delegation to its tiny neighbours, from Switzerland to Monaco and from Andorra to Liechtenstein, to persuade them not to become tax havens and to join Europe’s plans for automatic withholding of taxes on non- national bank accounts.
For tiny countries like San Marino, Andorra, or Monaco, this may feel like a visit from the heavy mob.
Switzerland may be more robust when the tax harmonisers of Europe call. But the Channel Islands, which are estimated to keep up to 400-billion out of the British taxman’s clutches, may find themselves fighting for their financial lives.
“To maintain the international competitiveness of the union’s financial markets, equivalent measures ensuring a minimum level of effective taxation should be adopted on as wide a basis as possible,” the commission said.
Decoded, that means they want to ensure no European money leaks out into tax havens from the withholding tax system. The tax has been strongly pushed by Germany, France and Belgium to prevent their wealthier citizens carrying undeclared cash to the discreet bankers of Luxembourg or Switzerland.
`We have not yet been approached formally by the EU about this, but like Switzerland we are members of the European Economic Area, so we have incorporated much of EU legislation into our laws,” a representative for Liechtenstein’s legation said.
“We have also passed laws that conform to international standards against laundering of money that has been illegally obtained, whatever our critics may say. But money that has been legally acquired and chooses to bank with us as a tax strategy, well, that is rather different.”
The EU proposal offers a simple but telling choice. Member states and their banks may either impose a 20% withholding tax, or report back to an account-holder’s country of residence the status of his account, and let the national tax authorities do the rest.
Britain’s tax havens, the Channel Islands and Isle of Man, should be getting worried. The report of the working group of financial policy for the Party of European Socialists, which includes 11 of the 15 EU governments, is a direct threat.
“Immediate action is required to eliminate tax havens throughout the EU. The existence of tax havens … is a threat to other states,” it said. “Existing autonomous areas within Europe should accept community rules in the field of taxation or be denied the benefits of the internal market.”
British Chancellor of the Exchequer Gordon Brown will go into battle against at least one aspect of the plan, which he fears could damage the City of London’s bond markets. The clash will come on December 1, when EU finance ministers meet to consider the taxation report that the commission passed recently.
A year ago, Britain signed an agreement on a code of conduct to prevent “unfair competition” in taxation, and Brown assumed British interests would be safeguarded since Treasury Secretary Dawn Primarollo has been chairing the working group.
“Much has changed in the last year, when we only just got that agreement passed,” said internal market and taxation commissioner Mario Monti. “And changes will come even faster with the euro. Tax co-ordination is now something everybody wants, to a greater or lesser extent.
“There is no consensus yet on harmonising our corporation taxes, and it would be ludicrous for Brussels to propose personal taxes. that is a matter for the member states,” Monti added.
ENDS