It is hard to visualise how EU finance ministers could ever fulfil their dream of truly taxing every EU resident on savings interest. So long as the European Commission continues to compromise on what started out as an essentially good idea, that utopia will always remain tantalisingly out of reach.
Every law-abiding citizen would agree that where tax is due, it should be paid. If it is not paid, then someone else, usually the honest crowd, are left to foot the deficit through additional taxation. No one likes that. So there is every reason why no-one should like the idea of tax cheats.
The European Commission had a good idea going when it proposed to introduce measures to stem tax evasion. If such measures meant that more money would move into Treasury coffers ' and subsequently there is less pressure on direct taxation ' life would be sweeter for all.
Only the Commission had to compromise to keep some of its members amicable, in the process weakening the scope of the whole operation
The story is well known, but worth repeating: The initial proposal was to introduce an EU-wide withholding tax on EU residents' savings. However, UK Chancellor, Gordon Brown, concerned by the potentially destructive effect it would have on London's successful Eurobond market, threw a spanner in the works and proposed automatic exchange of information instead. This, in turn, had Luxembourg, Austria and Belgium up in arms: automatic exchange of information would destroy their banking sectors.
So, the final decision: have both automatic exchange of information and withholding tax!
The ripple effect of this has been clear: non-EU nations who wish to have good relations with the EU ' Switzerland, the Channel Islands and the Isle of Man ' have also gone down the withholding tax route. While no-one is disputing that financial institutions in these locations will act in a bone fide manner, the option of a withholding tax removes from EU authorities the critical information on who has money offshore, and gives tax cheats options on where they should operate.
And this is at the heart of the matter. If someone does not have anything to hide, then why the need to still preserve secrecy? If the EU ' and other co-operating nations ' was a level playing field in terms of exchange of information, then the authorities would have a better idea of who the tax avoiders were. At least they would be able to narrow down their suspicions to those people who place their money in locations where there is no exchange of information.
Without client information, tax cheats will always find new avenues to operate. Who is to stop someone from having accounts in both a withholding tax location as well as in an exchange of information location, and between the two locations create a tax arbitrage which leaves inland inspectors officials chasing their own tails?
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