EU seeks to tax savings held in Asian financial markets

(Source Article: EU tax officials set sights on Asia – FT. com)

The EU Savings Tax Directive, designed to tax savings accounts held by EU citizens in nearby tax havens, including Switzerland and Luxembourg, is failing to generate significant tax revenues. See Swiss Figures Expose Flaws in EU Savings Tax Directive – Tax-News.com. According to the European Commissioner for Taxation, Laslo Kovacs, the low tax yield is explained by wealth transfers by EU citizens to jurisdictions not subject to the Directive, primarily Hong Kong and Singapore.

To remedy this limitation, Mr. Kovacs is seeking a mandate from EU finance ministers by the end of 2006 to begin negotiating with Hong Kong and Singapore to extend the Directive’s reach. There is even speculation that the EU would package the Directive into EU–ASEAN trade talks.

Mr. Kovacs’ plan will likely face stiff opposition in Asia. First, private bankers in Asia deny the need for the Directive, explaining that reported inflows of savings from the EU are exaggerated. In addition, Asian financial centers benefit from their status as tax havens. Singapore, for example, has adopted strict, Swiss-style bank secrecy laws, and the city-state’s non-participation in the Directive furthers its aspiration to become a global financial hub. See Scepticism over EU tax plans for Asia – FT.com.

Time will tell whether the EU will be able to impose the Directive on Hong Kong or Singapore. But even if the EU is successful there, what will stop EU citizens from evading taxes by transferring wealth to the next Singapore?