Ecofin fails to agree tax on savings

EU finance ministers failed to agree on a savings tax after Luxembourg and Austria blocked a deal with Switzerland to target tax evaders. Switzerland has agreed to an exchange of information on EU residents' income on demand in cases of tax fraud but has refused to abolish banking secrecy.

Luxembourg and Austria are unwilling to abandon their own bank secrecy because they fear that savers might react by transferring funds to Switzerland. And they reject a proposal to introduce a withholding tax on savings, starting at 20 per cent in 2004 and rising to 35 per cent in three years.

Single Market Commissioner Mr Frits Bolkestein said another attempt would be made to agree a savings tax accord with Switzerland. He said the ministers had agreed that Denmark, which holds the EU presidency, would seek to clarify how far the Swiss would go in exchange of information in criminal and civil matters.

Yesterday's proposal demands all member-states automatically exchange information about interest paid on foreigners' bank accounts, to recover tax that they owe.

Luxembourg Prime Minister Mr Jean-Claude Juncker has been outspoken on the issue because his country's economy is substantially based on the business of banking.

The finance ministers agreed to meet again later this month to agree the savings tax before a self-imposed deadline of December 31st. They will also seek to break an impasse over energy taxation.

Switzerland's finance ministry said it would meet the EU's request for more detailed discussions on the savings tax.

While ministers met in Brussels, the President of the European Central Bank (ECB), Mr Wim Duisenberg, addressed the European Parliament's committee on economic and monetary affairs. He heightened speculation that the ECB would cut interest rates when its governing council meets in Frankfurt tomorrow. He recalled that the council was divided on whether to cut rates when it met last month but suggested recent events had reinforced the argument for action.

"On that occasion the view to keep the key ECB interest rates unchanged prevailed. But we also indicated we needed to monitor the downside risks to economic growth for their impact on medium-term inflationary pressures. Since our last meeting, evidence has strengthened that inflationary pressures are easing and downside risks to economic growth have not vanished," he said.