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Whither or wither the European Union Savings Tax Directive? A case study in the political economy of taxation
George Peter Gilligan
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To cite this document:
George Peter Gilligan, (2004),"Whither or wither the European Union Savings Tax Directive? A case study in the political economy of
taxation", Journal of Financial Crime, Vol. 11 Iss 1 pp. 56 - 72
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http://dx.doi.org/10.1108/13590790410809040
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ANALYSIS
Whither or Wither the European Union Savings
Tax Directive? A Case Study in the Political
Economy of Taxation
George Peter Gilligan
INTRODUCTION
Downloaded by Universitas Gadjah Mada At 01:07 03 August 2015 (PT)
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reiterated its opposition to a European Union proposal that would require nations to collect and
share private nancial information on nonresident
investors. Larry Lindsey, the President's senior
economic advisor and Director of the National
Economic Council, rmly stated that ``the
Administration does not support the EU Savings
Directive there is zero interest in it''.'68
Both these statements are signicant, but for the
purposes of this analysis it is especially important
to note the SwitzerlandUSEC interaction. The
success of the EUSTD is contingent on support
from various quarters including Switzerland, the
USA, Luxembourg and a number of dependent
territories such Jersey, Guernsey and the Cayman
Islands. Throughout 2002 various EU member
states and the EC applied pressure to gain such
support, a pressure that at times was described as
`unacceptable' by Swiss Finance Minister Kaspar
Villiger.69 Mr Villiger is unlikely to have been
impressed by an article that appeared in the Financial
Times in October 2002, when Mr Frits Bolkenstein, the
EU's Internal Market Commissioner, was extremely
critical of the Swiss position on the EUSTD.70 In
September 2002, the leader of government business
in the Cayman Islands, the Hon McKeeva Bush,
echoed Mr Villiger's sentiments when he promised
to oppose the EUSTD in a number of ways including
court action.71 Mr Bush's pledge of September 2002
has been carried out in March 2003 when:
`The Caymanian authorities have launched legal
proceedings in the EU's Court of First Instance in
order to challenge the European Union's decision
not to allow the consultation process over its
savings tax directive requested by the jurisdiction
last October to go ahead.'72
Subsequently it has been reported that the Cayman
government intends to challenge both under EU
law, specically Article 230 of the European Community Treaty, and under English law, arguing that
the UK ` . . . does not enjoy the constitutional
power to impose legislation upon the Cayman
Islands without its consent'.73 This action by the
Cayman Islands is perhaps not so surprising when
one considers that the UK government is quoted as
having taken a `strong-arm' approach to its dependent territories on the EUSTD, with UK Chancellor
Gordon Brown reported as giving a December 2002
Econ meeting his
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And:
`Many free-market leaders were surprised by the
EU's wilful misrepresentation of the US position.
According to Grover Norquist of Americans for
Tax Reform, ``The EU admitted last month that
US information-sharing policies are not compatible with the Savings Tax Directive. And since
America does not impose a withholding tax on
most forms of non-resident savings and certainly
doesn't share any revenue with other nations, it
also is clear that US policy is incompatible with
the revised Directive. So why are the bureaucrats
in Brussels misrepresenting the US position? Do
they really think people in Switzerland, Luxembourg, and other nations are too stupid to understand that the Directive is going to drive capital
to non-participating jurisdictions like America,
Panama, and Hong Kong?'' '94
This evaluation is pretty blunt, but perhaps has
more than a ring of truth to it. Remembering that
the original deadline for nalising arrangements on
the issues of taxation of savings within the EU was
the EU Summit in Helsinki in December 1999, the
EUSTD staggers on through 2003 like a dehydrated
and disoriented marathon runner that knows that the
nish lies somewhere up the road, but is not really
sure when they are likely to arrive, if at all, but continues to push on regardless. Unsurprisingly some
jurisdictions are attempting to put a gure on the
likely costs that they might incur if the EUSTD
does cross the nishing line eventually:
`A report conducted on behalf of the Cayman
Islands by Cambridge-based economics expert,
Professor Sir James Mirlees has warned that the
jurisdiction faces a potential economic loss of
around $50 million per year as a result of the
European Union's Savings Tax Directive, which
will directly aect the jurisdiction, as a UK
Crown Dependency.'95
Similarly, a report authored by Oliver Guirdham
and issued by the business information company
Datamonitor96 has warned that:
`UK oshore territories are likely to be among the
worst aected by the directive . . . Datamonitor
forecasts that fully compliant, information swapping territories are likely to lose 58 per cent of
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Gilligan
CONCLUSION
Page 66
France
Netherlands
Germany
Ireland
UK
USA
Hong Kong
53.25%
52%
48.5%
42%
40%
38.6%
15%
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Ibid.
2401 Council Econ (2001) Brussels, 13th December,
p. 12, Press: 465 No. 15139/01, http://ue.eu.int/pressData/
en/econ/DOC.69109.pdf.
For some discussion of how these issues play out in the
WTO see: Atik, J. (2001) `Democratizing the WTO',
Loyola-LA Public Law Research Paper No. 20011, http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=250331; and
Guzman, A. T. (2002) `Global Governance and the
WTO', UC Berkeley Public Law Research Paper No. 89,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=321365
The OECD is based in Paris and comprises 30 member
countries with the European Commission as a member
international organisation. The 30 member countries are:
Australia, Austria, Belgium, Canada, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary,
Iceland, Ireland, Italy, Japan, Korea, Luxembourg,
Mexico, Netherlands, New Zealand, Norway, Poland,
Portugal, Slovak Republic, Spain, Sweden, Switzerland,
Turkey, the UK and the USA. All members share a stated
commitment to democratic government and the market
economy. The OECD has active relationships with 70
other countries and seeks to foster good governance in the
public service and in corporate activity. For more information regarding the OECD, see: http://www.oecd.org/EN/
about/0,EN-about-0-nodirectorate-no-no-no-0,00.html
The Financial Action Task Force on Money Laundering
(FATF) is an inter-governmental organisation that seeks to
develop and promote policies at both national and international levels to combat money laundering. The FATF was
established following the G-7 Summit held in Paris in
1989. G-7 members are: Canada, France, Germany, Italy,
Japan, the UK and the USA. Initially, the FATF was
convened from the G-7 member states, The European
Commission (EC) and eight other countries, but it now
has a membership of 29 jurisdictions, with the EC and the
Gulf Cooperation Council as member international organisations. The 29 member jurisdictions are: Argentina,
Australia, Austria, Belgium, Brazil, Canada, Denmark,
Finland, France, Germany, Greece, Hong Kong, Iceland,
Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, Turkey, the UK and the USA. The
FATF has a small Secretariat that is housed in the headquarters of the OECD in Paris, but the FATF is a separate
international body and not part of the OECD. For more
background information regarding the FATF, see: http://
www.oecd.org/fatf/AboutFATF_en.htm
The FSF was established following the meetings in October
1998 in Washington DC and in Bonn in February 1999 of
the Finance Ministers and Central Bank Governors of the
G-7 which commissioned (in Washington), and later
accepted (in Bonn), the recommendation of the Tietmeyer
Report, on International Co-operation and Co-ordination in
the Area of Financial Market Supervision and Surveillance, to
establish a Financial Stability Forum. The FSF was
convened on 14th April, 1999 to promote international
nancial stability through international cooperation and
information exchange in nancial supervision and surveillance. The FSF has a total of 40 members comprising:
Chairman (1), representatives of National Authorities (25),
International Financial Institutions (6), International Regulatory and Supervisory Groupings (6) and Committees of
Central Bank Experts (2). Of the National Authority Representatives: the G-7 member countries each supply three
(from their treasury, central bank and nancial supervisory
agency); and Australia, Hong Kong, Netherlands and
Singapore each supply a single representative. Regarding
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http://www.freedomandprosperity.org/memos/m12-21-01/
m12-21-01.shtml
Center for Freedom and Prosperity Weekly Update, 22 February
2002, House Government Reform Committee Chairman Dan
Burton Urges Vigorous Opposition to Information Exchange
Schemes, http://www.freedomandprosperity.org/ltr/burton/
burton.shtml
Godfrey, M. (2002) `The US Starts To Recognize EU
``Information Exchange'' Problem', Tax-news.com, 20th
June.
Center for Freedom and Prosperity Weekly Update, 12 February
2002, Third Ranking Republican in U.S. Senate Denounces the
EU's Savings Tax Directive, http://www.freedomandprosperity.org/ltr/santorum/santorum.shtml
Godfrey, M. (2002) `EU Claims that US Supports Savings
Tax Directive', Tax-news.com, 27th June.
CFP Press Release, 24th July, 2002, `CFP Hails Death of EU
Savings Tax Directive, Bush Administration Rejects Tax
Cartel', http://www.freedomandprosperity.org/press/p0724-02/p07-24-02.shtml
Mitchell, D. (2002) CFP Strategic Memo, June 26 2002, To:
Supporters of Tax Competition, Financial Privacy, and Fiscal
Sovereignty, Re: Who is in Charge: President Bush or IRS Bureaucrats? http://www.freedomandprosperity.org/memos/m0626-02/m06-26-02.shtml
Alden, E., Guerrera, F. and Shlaes, A. (2002) `US Opposes
Sharing Information on Savings Taxation: White House
Advisers Come out against European Request for Data on
Foreign-held Accounts', Financial Times, 26th September.
CFP Press Release, 29th October, 2002, `White House
Reiterates Opposition to EU Savings Tax Cartel: FreeMarket Leaders Hail Administration Stance', http://
www.freedomandprosperity.org/press/p10-29-02/p10-2902.shtml
Morton, P. (2002) `Kaspar Villiger Hits out at ``Unacceptable'' EU Criticisms', InvestorsOshore.com, 28th June.
Bolkenstein, F. (2002) `Comment and Analysis, I Cannot
Stand Switzerland Cheating on Tax', Financial Times, 7th
October.
Banks, A. (2002) `Cayman Leader Promises to Fight EU Tax
Initiative', Tax-news.com, 17th September.
Banks, A. (2003) `Cayman Takes EU to Court over Savings
Tax Directive', Tax-news.com, 17th March.
Banks, A. (2003) `Cayman Delegation Challenges EU in
Court', Tax-news.com, 21st March.
Banks, A. (2002) `UK Commits Dependent Territories over
Savings Tax', Tax-news.com, 5th December.
The European Commission, Communication from the
Commission to the Council, Report Concerning Negotiations with Third Countries on Taxation of Savings
Income, Brussels, COM(2002).
Ibid., p. 3.
Ibid.
Ibid., p. 5.
Ibid., p. 7.
Ibid., p. 9.
Ibid., p. 10.
Ibid., p. 12.
Ibid., pp. 1314.
Ibid., pp. 1415.
Parker, G. (2002) `France and Germany Call for EU Tax
Accord', New York Times, 1st December.
2471 Council Econ (2002) Brussels, 3rd December,
Press: 361 No. 14368/02, p. 5, http://ue.eu.int/Newsroom/up.
asp?MAX=1&BID=93&DID=73473&File=/pressData/en/
econ/73473.pdf&LANG=1
Mitchell, D. J. (2003) CFP Strategic Memo, 6th January
2003, To: Supporters of Tax Competition, Analysis of 2002
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