TCS Daily

Let the Saver Beware

By Pierre Bessard - November 2, 2005 12:00 AM

Will Brussels bureaucrats ever let go of European citizens' financial privacy? If Laszlo Kovacs has his way, the answer is no. The EU commissioner for taxation and customs union wants to discontinue the "anomaly" of privacy for tax purposes. Switzerland's decisive role in the implementation of the EU's Savings Directive by setting up an anonymous withholding tax on savings income for EU residents instead of exchanging information has obviously opened the European Commission's appetite for more. Austria, Belgium, and Luxembourg, which were able to temporarily adopt the same system, had better watch out.

Unsurprisingly, the Commission and Kovacs claim they are not against financial privacy or tax competition. "The real issue is the right mix of policies needed to reach our common objectives in the EU," Kovacs recently explained in Zurich, pledging to maintain "the unique European social model and EU's overall approach to sustainable development". As a former communist apparatchik in Hungary and a current vice-chairman of the Socialist International, the EU commissioner just does not believe in low taxes. "An overall high tax burden may not be a deterrent to productive investment," he tells us.

So Kovacs is all for "banking secrecy", but only "as long as it does not stand in the way of proper exchange of information, particularly for purely tax purposes". In other words, keeping your finances private is fine if tax authorities can access your bank accounts and show them to each other. Not a prime specimen of Aristotelian logic there. Kovacs's dialectical skills go beyond this. A large part of the EU's tax policies are not aimed at "harmonizing" tax rules, oh no: It would be a mistake to think so. "Rather, we try to ensure the coordination of tax policies." The present lack of "coordination" of tax systems, Kovacs informs us, is "an invitation to tax planning and tax avoidance". Sound familiar? In any case, it is reason enough for him to also travel in the near future to Hong Kong and Singapore "to see if they are prepared to adopt measures equivalent to the Savings Directive". This, according to the EU tax chief, would contribute to "the proper taxation" of EU residents on their deposits in these countries. Well, everybody needs a mission.

But our "coordinating" globetrotter does not limit himself to exchanging information on your private financial matters. Kovacs is working on a "common consolidated" (not "harmonized"!) corporate taxation base to become law in three to four years. Regardless of whether the retained model will look like the simple Slovakian system or than the Byzantine German one, centralizing the tax base is a dire prospect for competition, especially in the face of places like Dubai, which do not apply any taxes. So much for reducing compliance costs of tax systems in Europe by centralizing them. Besides, corporations as such don't pay taxes: the money must always come from real human beings, stockholders, employees, or customers - a fact that makes the idea of taxing "corporations" look like a benign fraud. But the Commission also supports non-legislative measures such as the Code of Conduct for Business Taxation and the OECD's ongoing initiative on "harmful" tax practices. In parallel, it is questioning the corporate taxation practices in the lowest-tax Swiss cantons, including Zug, which harbors the fourth largest commodities trading market in the world.

It is terribly unfashionable to take sides with Switzerland in these matters. Doesn't the "fat little country" at the heart of the continent only get what it deserves for refusing to cough up its "dues" for the grand vision of "constructing" Europe? Isn't it "unfair" that a German entrepreneur such as Theo Müller was able to avoid €200 million in inheritance taxes and save as much in productive capital by moving his headquarters south of the Rhine? Or that Switzerland's permanent population increased, net, by 11,374 people from Germany, 1,397 from France, and 681 from Britain just during the past 12 months? Many opinion makers in competing financial centers such as London and New York can't resist a binge of Schadenfreude whenever the Swiss are expected to surrender to some new legislation or soft law on financial privacy or tax practices. As if wealth creation was a zero-sum game.

Europeans and others, however, have no reason to rejoice. The issue here is not so much about an additional fraction of a percentage point of economic growth as a result of "tax competition". It has more to do with every European's fundamental right to his or her own property. There is no rationale for suppressing a person's legitimate freedom of exit from bloated EU welfare states and horrendous tax burdens. On the contrary: People wise enough to recognize their positive contribution to society by preventing part of their hard-earned money from landing into depraved government hands should be applauded.

Will Switzerland go wobbly this time? It is unlikely. Pro-EU sentiment is decreasing every day, including within government. In 2001, 76.8 percent of voters chose not to open negotiations for EU entry. That proportion is now believed to be closer to 90 percent. Further, the EU needs to reach unanimity for most decisions on tax matters. Despite peer pressure, some member governments in Central and Eastern Europe show no intention to fully go along with Kovacs's plans. But the prevailing complacency toward the Commission's proposals points to a real challenge: The moral case for tax competition, exit options, and respect for property rights has rarely been so pressing in Europe.

Pierre Bessard is political editor of L'Agefi (, the Swiss financial daily newspaper, and a founder of the Institut Constant de Rebecque (, the free-market think tank, which recently launched the Center for Tax Competition (, a monitoring and analytical center on tax policy.



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