Bowles slashes withholding tax incentive

12.52.32pm BST (GMT +0100) Fri 24th Apr 2009

Sharon Bowles MEP, a leading ALDE member of the Economic and Monetary Affairs Committee, welcomed the adoption by the European Parliament today of recommendations to the Commission and Council concerning new rules which will help to close loopholes on the taxation of savings income in the form of interest payments.

The measures passed included Sharon's proposal to slash the amount Member States could keep from 25% to 10%.

'I was particularly concerned to level the playing field between withholding tax and the system of information exchange between Member States. Under 'withholding tax', some countries collect a tax on interest from investors from other counties and then forward 75% of what they collect back to the investor's country, but without information as to who the investor was. This means that there can be hidden wealth or lower taxes applied than are really due.

'I considered that the 25% that a country was allowed to keep for administrative purposes was an incentive for them not to join in the information exchange system, under which tax authorities get to know who has earned income in other countries. Not only is information exchange fairer, it can help in uncovering other misdoings. At present only Belgium, Austria and Luxembourg still use withholding tax, but have been very reluctant to give it up. I hope that this will form the first step towards it stopping being such a nice little earner for them.'