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European Savings
Tax Directive (ESD)
The problem
Tax competition becomes more important in a global
economy, because it is increasingly easy for taxpayers to shift
their productive activities to lower tax environments.
"Just as banks, pet stores, and car companies treat
customers better when they know there is a competitor down the
block, governments treat taxpayers better when they know economic
activity can cross national borders"
Wolf, Martin, "Wooing the global
taxpayer," Financial Times, July 19, 2000, p. 11
But, many governments do not like it. It is simple to
understand why.
The competitors
1. Higher-tax
nations
There is a simple target for this team: How can we stop taxpayers
from fleeing to lower tax environments?
Higher tax nations
will definitely win.
It is obvious.
Almost all the good players are with them:
The options: 1. The "automatic exchange of information" option Exchange of information about EU tax resident individuals who earn savings income in one EU Member State but reside in another 2. The "withholding tax" option Tax will be deducted at source from income paid to individuals on certain types of savings where the individual is resident in another EU Member State 2. The so-called "tax havens" or offshore financial centers (OFCs) These jurisdictions account for 1.2 percent of the world's population, but have 26 percent of the world's assets. They offer financial privacy, limited regulation, low or no taxes, and mechanisms providing anonymity for the beneficial owners (who are mainly US or EU citizens). Major OFCs such as the Cayman Islands, Bermuda, and the Bahamas do not have personal or corporate income taxes. Some of these jurisdictions are highly attractive to very rich people and legal entities. Unfortunately they are also attractive for criminals for a variety of reasons including money-laundering and financial fraud. Unfortunately, Enron used Special Purpose Vehicles (SPVs) in OFCs. Terrorists did the same. BCCI was another example. There was no supervision on a consolidated basis for BCCI. It was by design so. And it was too bad. Some of the offshore banks have a very bad reputation. According to the U.N. “an offshore institution is any bank anywhere in the world that accepts deposits and/or manages assets denominated in foreign currency on behalf of persons legally domiciled elsewhere” According to the United Nations, about $8 trillion is invested in offshore companies and accounts. Although not in the EU, many offshore financial centers have voluntarily agreed to apply the same or equivalent measures to those in the ESD. These offshore financial centers include:
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