Friday, June 04, 2010

Sleepers, awake! The City is defying you

The Financial Times is running an appalling comment article that is a piece of cheerleading for the financial services industries almost unparalleled in its contempt for democracy and ordinary people. Entitled Sleepers, awake! The City is depending on you the article contains many egregious things. We will leave it to others (as they surely will) to eviscerate most of the article: we will focus on just one section:

"For the City, getting the right answers to these problems, whether at home or overseas, is crucial. Doing so calls for well-thought-out, co-ordinated and sustained action by those involved, whether ministers, officials, trade associations or individual companies. A few years ago, few would have doubted that London would rise to such challenges.

In 1999, for example, the City and Treasury launched a major effort to correct the principal defects in the proposed European savings tax; and against unfavourable initial odds, they succeeded. In late 2000, a group of trade associations and banks combined to discuss with Baron Alexandre Lamfalussy and his “wise men” the proposals they were preparing for European financial regulation – apparently with great success."

The EU Savings Tax Directive. Now there is a tale. The main "defects" in the EU STD, as far as the City was concerned, was that there was too much transparency, and the EU wanted this transparency to be too comprehensive. Specifically, the EU STD wanted to include funds - unit trusts, and a vast range of instruments, as well as trusts and other vehicles - to help governments know who investors in these things were, and to tax them accordingly. So interest income and dividends and royalties received by company entities, for example, would have been subject to tax information exchange requirements. The City lobbied for secrecy and, in partnership with secrecy jurisdictions like Luxembourg, they successfully eviscerated many of the proposals - though to Europe's credit it retained enough of a rump initiative to form the basis for something useful. The automatic information exchange process used in the STD has become the gold standard for international cooperation in this area.

Here is an example of the kind of article that was being written at the time. The result? As one report puts it:

"Many types of investment that are not covered by the directive include dividends, capital gains and payments from life insurance policies and pension schemes and private citizens are exploiting numerous loopholes in the European Union’s rules on savings taxation so as not to pay tax on interest income by using trusts, foundations and other investment vehicles"


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