There are not a few people who are entirely indifferent to the idea that our government is steadily delegating its functions to the European Union. Looking at the mess our own administration is making of things, they argue that the EU could hardly do worse and, possibly, its gifted bureaucrats could be better at running the show.
Any such sentiment, however, it quickly disabused by a Financial Times report on "Europe's 14-year struggle to tax its citizens' offshore savings", through its withholding tax directive. This, the paper says – in starkly simple terms – "has flopped".
The whole point of the directive was for member states to recoup tax from the interest on money that their citizens had deposited in foreign bank accounts – the custom being, conveniently, to fail to declare such sums to national (or any) taxmen.
Under the directive, countries holding accounts of non-resident citizens of EU countries are supposed to levy a 35 percent tax on the interest paid on savings held, and hand them over to the relevant national authorities – less their own cut for administration.
The two main holders of such cash have been Switzerland and Luxembourg but, it seems, the bankers have been extremely ingenious in exploiting loopholes in the law. Thus, instead of the expected bonanza, in the first six months of the law’s operation, Switzerland has raised only €100m in withholding taxes on the vast savings held there by citizens of EU member states.
Luxembourg has been just as adroit, collecting a mere €48m in the second half of 2005. Others, such as Jersey, pulling in €13m, Belgium €9.7m, Guernsey €4.5m and Liechtenstein €2.5m.
The main beneficiary of this system was expected to be Germany, which seems to have a huge proportion of citizens who believe that the high-tax social model should only apply to other people. They are believed to have as much as €300bn stashed away in tax-friendly countries and the German finance minister was looking to grab, potentially, several billion euros for his coffers. Instead, its take from Switzerland has been a paltry €20 million.
The trouble is that the directive was so controversial that some EU member states inserted loopholes to maintain their appeal to offshore investors. Other loopholes were created by loose legal definitions, while ambiguity was added with the translation of the original draft law from English to French and back to English.
Now, Dieter Leutwyler of the Swiss Federal Department of Finance – in between wiping the tears from his eyes – is saying that any consultations with the EU over "substantive changes" to the directive could only happen after July 2011 or when both sides agreed to such talks.
At least, when our own government does things as ineptly, there is the somewhat small consolation that it is our own mess.