TAX PACKAGE
(21365)
9034/00
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Report of the ECOFIN Council to the European Council on the tax package.
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| Legal base: |
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| Document originated:
| 20 June 2000 |
| Deposited in Parliament:
| 29 June 2000 |
| Department: |
HM Treasury |
| Basis of consideration:
| EM of 11 July 2000 |
| Previous Committee Report:
| None; but see paragraph 10.2 below
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| Discussed in Council:
| 19-20 June 2000 |
| Committee's assessment:
| Politically important |
| Committee's decision:
| Cleared |
Background
10.1 The ECOFIN meeting in December 1997
focussed on the need for co-ordinated action at European level
to tackle perceived harmful tax competition in order to reduce
distortion in the internal market and prevent loss of tax revenues.
That meeting led to the so-called 'tax package'. This includes:
- the draft Directive on the taxation of savings
(cross-border interest payments to individuals — the so-called
"savings directive");
- the draft Directive on taxation of cross-border
interest and royalty payments between associated companies; and
- the Code of Conduct on business taxation.
10.2 ECOFIN made progress reports on these
proposals to the European Councils in Vienna in December 1998,
Cologne in June 1999, and Helsinki in December 1999.
10.3 On 9 February 2000, we reported[18]
on ECOFIN's report to the Helsinki Council. As regards the savings
directive, we set out the difficulties then standing in the
way of agreement. We noted that the Helsinki Council had endorsed
the general principle that "all citizens resident in a Member
State should pay the tax due on all their savings income"
and had agreed that a High Level Working Group should be established
to see how the principle could be implemented more effectively
and should report to ECOFIN before the Feira European Council
in June 2000. Our Report of 9 February and subsequent Reports[19]
also covered the other two elements of the tax package.
The document
10.4 The document sets out the ECOFIN report
to the Feira European Council in June 2000 setting out the agreement
it had reached on key elements in the tax package.
10.5 The agreement on the savings directive
reflects a substantial shift towards a solution reflecting the
UK's argument that the directive should be based exclusively on
exchange of information about the savings of non-residents (rather
than the original proposal of a withholding tax or exchange of
information), and that the Community should promote information
exchange at an international level as the solution to tax avoidance
on savings. The agreement provides that:
"In order to preserve the competitiveness of
European financial markets, as soon as agreement has been reached
by the Council on the substantial content of the Directive and
before its adoption, the Presidency and the Commission shall enter
into discussions immediately with the US and key third countries
(Switzerland, Liechtenstein, Monaco, Andorra, San Marino) to promote
the adoption of equivalent measures in those countries; at the
same time the Member States concerned commit themselves to promote
the adoption of the same measures in all relevant dependent or
associated territories (the Channel Islands, Isle of Man, and
the dependent or associated territories in the Caribbean). The
Council shall be informed regularly on the progress of such discussions.
Once sufficient reassurances with regard to the application of
the same measures in dependent or associated territories and of
equivalent measures in the named countries have been obtained,
and on the basis of a report, the Council will decide on the adoption
and implementation of the Directive no later than 31 December
2002, and do so by unanimity.
"The Commission shall report regularly on Member
States' experience with the application of the systems referred
to [in the paragraph above], as well as on international developments
concerning the access to bank information for tax purposes. When
the Council decides on the adoption and implementation of the
Directive on the basis of [the paragraph above], with the consequences
that follow for dependent or associated territories, any Member
State operating a withholding tax shall agree to implement exchange
of information, as soon as conditions permit, and in any case,
no later than seven years after the entry into force of the directive."
10.6 ECOFIN also decided that "work
should be pursued on the above basis with a view to reaching agreement
on the tax package, according to a parallel timetable for the
key parts of the package (taxation of savings, Code of Conduct
(Business Taxation) and interest and royalties)."
10.7 The agreement was glossed by detailed
statements for the Council Minutes which made it clear that all
Member States expected resolution of the outstanding issues in
the statements before the Council adopted the savings directive.
These included:
- the Council and the Commission commit themselves
to seeking agreement on the substantial content of the directive,
including on the rate of the withholding tax, by the end of the
year 2000;
- the Council states that the reference to unanimity
is without prejudice to the outcome of the IGC (at the end of
2000);
- the Council notes that Austria and Luxembourg
may operate the withholding tax during the transition period.
Belgium, Greece and Portugal will inform the Council of their
position before the end of 2000;
- the Austrian government accepts the OECD report
"Improving Access to Bank Information for Tax Purposes"
but cannot, at this stage, for constitutional reasons, accept
a move to drop banking secrecy for non-residents.
The Government's view
10.8 In her Explanatory Memorandum of 11
July 2000, the Paymaster General (Dawn Primarolo) says that:
"This report accurately details the agreement
made on the tax issues covered in the report. In particular it
confirms that, in order to implement the Helsinki principle that
'all citizens resident in a Member State of the European Union
should pay the tax due on all their savings income', the ultimate
objective of the EU is exchange of information. This is an explicit
endorsement of the UK's argument that exchange of information
is the only effective means of tackling cross-border tax evasion."
Conclusion
10.9 The outcome on the savings directive
represents a very significant shift of support in favour of the
approach the UK has pursued and the Government can properly feel
satisfied with the progress it has made in this important and
controversial area of Community business. It is clear, however,
that much remains to be achieved before any Directive can be adopted
and the prospect for substantive agreement on the content of the
Directive by the end of 2000 may be ambitious.
10.10 We note that it is still envisaged
that agreement should be reached on the package as a whole, including
the Code of Conduct on Business Taxation. We note that adoption
of the savings directive is not expected before the end of 2002,
and that may delay action on measures found harmful by the Code
of Conduct Group (as noted in our earlier Report of 10 May 2000
— see paragraph 10.3 above).
18 (20901) 13140/1/99; see HC 23-viii (1999-2000), paragraph
17 (9 February 2000). Back
19 (20901)
13140/1/99; see HC 23-xii (1999-2000), paragraph 6 (15 March 2000);
HC 23-xvi (1999-2000), paragraph 6 (10 May 2000) and HC 23-xx
(1999-2000), paragraph 9 (7 June 2000). Back
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