City fears start of Euro tax exodus
Issuers are attempting to avoid any tax by arranging for non-European Union institutions to pay the interest on their bonds.
Market participants are warning that the proposal, which would impose a 20 per cent tax on income from savings and investments, could deprive the City of one of its most lucrative sources of revenue and cost thousands of jobs.
Cliff Dammers of the International Primary Market Association, which represents debt and equity underwriters, said: "More and more issues are being done with Swiss paying agents, or with the issuer retaining the right to move the paying agent offshore.
"The paying agent business is not very big in London, but the problem is that we could see private banking and custody business also leave the City. We expect that to happen."
Austria, whose government supports the Brussels directive, recently issued a 500m Swiss franc bond with fine print attached that allows it to circumvent imposition of a withholding tax.
Andrew Haldenby, director of studies at the Centre for Policy Studies, said: "It is often forgotten that the bond market only consists of about 10 foreign-owned banks.
"They are very footloose and will relocate to whichever regulatory regime suits them best."
There are signs that the proposed tax is already affecting London's Eurobond market. Inter-dealer brokers, who act as middle-men in Eurobond transactions between banks, report that trading so far this year has been slow.
One broker said: "Traders are unwilling to deal until the uncertainty about the withholding tax has been sorted out. A lot of brokers have missed out on their bonuses."
Mr Dammers said: "People have stayed away from new bonds, and in the last two weeks we have seen investors begin to sell the bonds which are at risk."
The withholding tax question is expected to dominate next weekend's informal Ecofin (the European Council of Finance Ministers) meeting in Dresden, which will be attended by the Chancellor of the Exchequer, Gordon Brown.
The Government, which has the right to veto, has said that it opposes the withholding tax directive in its current form.
One proposed compromise would be to exempt issues which cannot be held in units of less than 40,000 euros. That would preserve the directive's original aim, which was to clamp down on cross-border tax evasion by retail investors.
- 1 PlayStation and Xbox hacked by Lizard Squad
- 2 Christmas comes early to Hong Kong, as millions of bank notes spill out onto busy street
- 3 The 'Black Museum': After 150 years, public can visit police’s grisly crime museum
- 4 British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
- 5 Vagina canoe artist defends herself over ‘obscenity’ charges
PlayStation and Xbox hacked by Lizard Squad
Antonio Martin shooting: Black teenager may have tried to ambush patrolman, says police officer's lawyer
Katie Hopkins speaks out on childhood obesity: 'Parents of fat children should be prosecuted for child cruelty'
Boxing Day snowfall set to push even more bargain-hunters online for sales
The 'Black Museum': After 150 years, public can visit police’s grisly crime museum
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Alex Salmond has 'broken his word to the Scottish people' says Scottish Lib Dem leader
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...