Appeasement generally is not a good strategy since it encourages an aggressor to make additional demands. This certainly is the case in Brussels. The European Commission is gearing up for a campaign to expand the size and scope of the so-called savings tax directive. This cartel seeks to prop up bad tax policy by making it easier for high tax nations to double-tax income that is saved and invested. The bureaucrats in Brussels are upset that the current version of the directive, which was implemented in 2005, is riddled with loopholes, enabling most taxpayers to protect their assets from an additional layer of tax. So now they want to expand the directive, both in terms of the types of savings and investment that would be subject to double-taxation and the number of countries asked to be in the cartel. Hong Kong and Singapore already have told the Europeans that they have no desire to sabotage their economic interests by helping Europe's welfare states track - and tax - flight capital. This resistance is good news, but the bureaucrats learned from the first round of this battle that it is possible to badger low-tax jurisdictions into making foolish decisions. The Financial Times reports on the European Commission's radical agenda:
has launched a drive to close the gaping loopholes in a two-year-old European savings law… early evidence is that the directive is failing to bite. Switzerland, the world’s biggest offshore financial centre, only raised €100m in the first six months of the law’s operation. Meanwhile Mr Kovacs is worried that some savers have moved to Hong Kong and Singapore – not covered by the directive – and he is trying to arrange reciprocal deals with them. …Whether he can persuade EU member states and third countries to give their unanimous agreement is questionable: diplomats say big offshore financial centres like Switzerland, Luxembourg and Austria only agreed to the directive precisely because it contained so many loopholes. …A Commission working document…proposes…extending the directive’s reach to include companies and trusts. It also floats the idea of blocking the deliberate routing of interest payments through branches of banks located in jurisdictions not covered by the directive, whose reach also includes several Caribbean islands, the Channel Islands and the Isle of Man. The working paper suggests that the tougher definition of “beneficial ownership” used for anti-money laundering obligations should be adopted for the savings directive. This would bring discretionary trusts and companies into its scope. It suggests imposing a new obligation on EU banks to report – or withhold – interest payments made through non-EU branches. …It suggests reconsidering whether interest-generating securities “wrapped” within life insurance, pension or annuity contracts should be exempt from the directive.