Today's
comment is by Mark Nestmann, Wealth Preservation & Tax Consultant
for The Sovereign Society and President of The Nestmann Group.
Dear A-Letter Reader:
The European Union is nothing if not persistent.
But I seriously doubt the EU bureaucrats' grasp of reality,
particularly when this meddlesome group, laboring in their ivory towers
in Brussels, came up with a harebrained scheme called the "Savings Tax
Directive."
The idea was simple, but completely impractical from the start. The
idea was to impose a global information-exchange mechanism between tax
authorities to insure that EU citizens were paying tax on their savings
income.
The Brussel's bureaucrats, under the banner of "tax harmonization"
(meaning high taxes for all), started by requiring all EU countries to
automatically send information on all interest payments made to an
individual who resides in another EU country. Three EU
countries-Luxembourg, Austria and Belgium-have opted out of this
system, choosing instead to impose a withholding tax of 15% on interest
payments. The tax will increase to 35% by 2009.
Switzerland and Liechtenstein also agreed to participate, but both
insisted that they also be permitted to impose the withholding tax,
rather than exchange information with tax authorities in other
countries.
The Directive, which came into effect earlier this year, has more
holes in it than a pound of Swiss cheese. First of all, this tax scheme
only covers interest payments, so many investors simply switched to
dividend paying stocks (and legally dodged this extra tax burden).
Other investors have formed business entities-which aren't covered by
the directory-to receive interest payments. Still others have made the
sensible choice to invest outside of the EU, which is a wholly
predictable consequence.
In the first six months of the law's operation, Switzerland raised
only US$125 million in withholding taxes. Luxembourg collected less
than half that amount, with other European countries participating in
the withholding system collected much less. Tax collectors were shocked
at the disappointing results. They were expecting a windfall of
billions of euros annually.
You have to wonder what the EU decision makers and tax collectors
were smoking to believe that such a flawed scheme would have any chance
of success.
But that hasn't stopped the EU from trying to impose their will on
other countries. That hasn't worked, either. Two years ago, the
U.S.-the world's largest recipient of the world's "flight
capital"-firmly rejected the EU's invitation to participate in the
flawed savings directive. And just last week, Singapore and Hong Kong
said "no" to the EU as well.
The EU says the problem is that there is too much "tax competition."
Hogwash. The problem is that several countries in the EU-among them
France and Germany, the most vocal advocates of the Savings Tax
Directive-have some of the world's highest tax rates. It's no wonder EU
citizens are anxious to avoid paying them.
If the EU wants to combat capital flight out of the EU, then they
should just scrap the Savings Directive and encourage its members to
make their tax systems more competitive, with lower tax rates, much
simpler reporting requirements and fewer exemptions. Fat chance this
will happen, though, even though the Directive has now been proven to
be a colossal failure.
MARK NESTMANN, Wealth Preservation &
Tax Consultant on behalf of The Sovereign Society
assetpro@nestmann.com
www.nestmann.com
EDITOR'S NOTE: Some of our favorite offshore
havens, like Switzerland, Austria, and Liechtenstein have maintained
their traditions of asset protection and privacy despite these EU
bureaucratic tricks - just another reason to take your assets to safer
locations offshore. Next week, The Sovereign Society will feature a
weeklong series on the various opportunities available offshore,
brought to you by the writers of the brand new book, Offshore Advantage: A Beginner's Guide to the Offshore World. Have a wonderful weekend - we'll see you next week.
