Center for Freedom and Prosperity (CFP) President Andrew F. Quinlan has reported that the Bush Administration is not expected to support US participation in the EU’s Savings Tax Directive. He said the CFP has been lobbying against tax cartels since October 2000, and defeat of the EU savings tax directive has been a “number one” priority. According to the CFP, the EU tax cartel is fundamentally inconsistent with good tax policy, would cripple tax reform and undermine the liberalizing process of tax competition.

Tax evasion on investment income is viewed as a critical issue in certain parts of Europe, and the Directive is premised on the idea that it could be tackled if all member states tax the income at source. The initiative effectively requires banks and other savings institutions to collect information on non-resident investors and share it with the tax authorities in the countries where the investors are domiciled.

Last week the Bureau of National Affairs, Inc. in Washington, D.C. reported that the US Treasury Department and the European Commission claimed – as of July 24 – to be in continued contact on this issue, despite the report coming from the CFP. Treasury spokeswoman Tara Bradshaw issued a statement saying the administration only *”had technical discussions about some specifics of the proposal at the staff level.”*

Treasury Secretary Paul O’Neill claims the U.S. has no interest in participating in any effort toward tax harmonisation and *”that protection of the confidentiality of taxpayer information is paramount”{I*} — this notwithstanding his view that information exchange agreements must be a priority. The Treasury has said it will continue to expand its tax information exchange relationships with significant financial centers.

Earlier this week, the Chairman of the U.S. House of Representatives Committee on Ways and Means asked the Administration to clarify its official position on this initiative. The European Commission has said it is confident it will be able to reach a system for the exchange of information on cross-border savings income that is mutually satisfactory for both the EU and the U.S.

Meanwhile, indications are that the Commission will hold technical discussions with Switzerland this month. Reports are that the EU remains hopeful that Switzerland might agree to a limited information exchange system where Swiss authorities would provide information about individuals on request from EU tax authorities. To date, Switzerland has offered to impose a tax on savings income of nonresidents and share the revenue.