Monday, July 13, 1998 Published at 18:27 GMT 19:27 UK
Business: The Economy
EU savings tax could net £140bn
Non-residents would have tax withheld
A new minimum tax on savings, as proposed by the EC commission to prevent tax avoidance, could raise up to £140bn ($228bn) a year.
At a conference in Vienna called by the Austrian Finance Minister, EU ministers learned that untaxed interest payments from government bonds and bank deposits amounted to £700bn.
Mario Monti, the EC tax commissioner, has proposed a 20% withholding tax on these accounts held by non-residents by the end of the year.
He argues that it is essential to ensure that taxes on capital apply equally across the EU. He is seeking deals with other major industrial countries to ensure cross-border co-operation on tax evasion.
Proponents of the measure say that co-ordination is needed to prevent tax avoidance and reduce the burden of taxation on workers. In the past decade, taxes on labour in the EU have risen by 7%, while the average tax on capital has fallen by 10%, contributing to Europe's high unemployment.
They have called for an independent study of the impact of any proposal on EU capital markets, fearing an exodus of money to tax havens outside Europe's jurisdiction.
UK Chancellor Gordon Brown has already made it clear that Britain would be prepared to veto any proposals if they hit the City of London, Europe's largest financial centre.
"We are not prepared to lose business as a result of these proposals and we will not allow that to happen. This requires unanimity and I have made it absolutely clear that we will stand up for British interests."
And Luxembourg Foreign Minister Jacques Poos asked, "Is it conceivable that the Union launch a tax..whose ultimate beneficiaries will be the capital markets situated outside the European Union?"
But Mr Monti insists that as the plan would only apply to EU individuals investing in other EU countries, it would not infringe on domestic sovereignty or precipitate capital flight. Austria hopes to bring the plan forward as part of its six-month Presidency of the EU.
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