Britain fights eurobond tax

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The Independent Online
BRITAIN will argue in the European Parliament this week that a withholding tax on eurobonds would put jobs at risk and undermine markets that are just starting to feel the benefits of the euro.

British MEPs hope to muster opposition to the tax by passing non-binding amendments to exclude international bonds from efforts to harmonise EU taxes. "If it happens, Switzerland will be a huge beneficiary," said Viscount Bridport, chief executive of the Geneva-based bond broker Bridport & Cie.

Under the European Commission's proposal, a 20 per cent tax would be levied on interest income in one European Union state paid to residents of another EU state. London has a near monopoly on the $3,300bn eurobond market, currently free of withholding tax. The Corporation of London estimates that the eurobond market employs 110,000 in the City.

But Stanley Yassukovich, chairman of the Brussels-based Easdaq exchange for smaller companies, maintains the tax plan "is not a UK issue, it's a European issue". He said implementing the plan would be a sign that the EU "isn't prepared to exploit its position as a world financial centre".

"The eurobond market is a business we are lucky to have in Europe," he added.

EU laws permit Gordon Brown to veto the tax. But this could strain relations with other member states at a time Tony Blair is trying to build bridges.

The vote tomorrow or Tuesday on 89 amendments to the tax bill before the economic affairs committee will set the stage for a full vote in the parliament. Officials said the outcome was too close to call. While the parliament plays only an advisory role on tax matters, opponents of a eurobond withholding tax hope its disapproval could sway EU finance ministers ahead of the decision in December.

"The reality [if a eurobond withholding tax is imposed] is the market will move from London either to New York or Switzerland," said Lord Bridport. He wrote to the Chancellor urging him to "convince our European friends of their short-sightedness".

EU Commissioner Mario Monti, the author of the tax, said the tax would hit only 10-20 per cent of the eurobond market, making it "only a very limited problem".