Theo Waigel, the German Economics Minister, chairing his first meeting of EU finance ministers under his country's presidency, said yesterday that Bonn would make the introduction of a harmonised tax on savings a priority in the next six months.
But Kenneth Clarke, Chancellor of the Exchequer, immediately complained: 'I cannot see any benefit in the idea, any move to introduce a union-wide withholding tax would drive investment out of the union to the benefit of markets such as New York, Tokyo and Zurich.'
He suggested London would be particularly hard hit since, according to Treasury figures, financial services account for 21.5 per cent of GDP. London controls 60 per cent of the primary bond market and 75 per cent of the secondary.
Mr Clarke indicated he would rather see individual member states work to make banking laws more transparent if the aim of a withholding tax was to prevent tax evasion. 'I am not at all persuaded that such measures would have the slightest effect on the problems they were intended to solve.'
Non-residents investing in Britain are not taxed on investments such as Eurobonds - a highly lucrative market. The original tax proposal was for a minimum 15 per cent, but is unlikely to be as high were there ever to be agreement. Britain is not alone in its opposition. Luxembourg - not usually a British ally in matters European - is also against the plan because it shares an interest with London as an important offshore banking centre.
It is in large part the competition from Luxembourg for investment funds that has spurred Germany to push the case, which is likely to be more vigorously pursued at the end of the month when the Germans, to the irritation of other member states, have scheduled an extra meeting of finance ministers to be dedicated to tax.
Bonn is also keen to push towards better convergence on VAT rules, as the transitional stage of sharply differing national rates is due to expire at the end of 1996. Fiscal fraud is also high on the agenda.Reuse content