EU to water down tax plan

THE EUROPEAN Commission is planning to water down plans to impose an EU-wide tax on savings that the City says will cost thousands of jobs.

Mario Monti, acting tax commissioner, said the EU wants to find a compromise over the planned "withholding tax" on interest income, which the City says will damage its $3.25bn (pounds 2bn) a year Eurobond market. It is part of a directive aimed at creating a single financial savings market and cracking down on cross-border tax evasion.

Mr Monti told City bankers last night: "The main concern is to find a practical method of effectively concentrating on the segments the directive is intended to cover."

The City has suggested exempting all securities held in clearing systems and all holdings above 40,000 euros (pounds 26,800). This would exempt 95 per cent of Eurobonds and would target the small retail investor.

Mr Monti said: "One idea put forward is to introduce a provision which effectively distinguishes between the wholesale and retail markets. I have welcomed this suggestion as it may contribute to a compromise."

The International Securities Market Association said the compromise was the "least damaging" way of exempting the Eurobond market so far submitted.

A spokesman said: "The ISMA still prefers to see this directive shelved in its entirety until an OECD-wide approach can be achieved."

The International Primary Market Association said the compromise proposals had been drawn up at the request of the Government.

The market has warned that a 20 per cent tax on all savings held by individuals outside their country of residence would spark a rush to off-shore tax havens.