UK fights on against eurobond tax plan

THE UK will continue its campaign to get eurobonds exempted from harmonised withholding taxes when the European Parliament addresses the issue on 8 February, despite a setback last week.

Simon Murphy, MEP, Labour's spokesman for economic and monetary affairs in Brussels, unsuccessfully tabled amendments to the tax harmonisation bill when it was reviewed by the parliament at sub-committee level last week, but he will re-table the amendments for inclusion in the general parliamentary debate.

"It is important we have an opportunity to fully discuss this matter," Mr Murphy said. "At risk are jobs in Europe and the prospect of a flight of the eurobond market from Europe to New York and Switzerland."

The powers of the European parliament in deliberating on the withholding tax bill are limited. Passage or non-passage of the bill, which calls for a uniform 20 per cent withholding tax on interest paid to EU citizens across borders, will not be ultimately binding.

The crucial decision will be taken by EU treasury ministers in December. The Chancellor of the Exchequer, Gordon Brown, has promised to use Britain's veto to kill the implementation if he believes it will hurt the UK economy.

But the debate shaping up in the European parliament will set the tone for December's crunch meeting. There are signs that bankers and governments outside the EU are already repositioning themselves for the possibility of a withholding tax on eurobonds. A vote by European parliament to exempt eurobonds could stop this drift.

"There is anecdotal evidence that money is already moving from London to Zurich," said Mr Murphy. Bankers say issuers of new eurobonds are considering siting the paying agents for these bonds in Switzerland. This would allow investors to collect payments on eurobonds without breaching any new EU withholding tax law.

Last week, the Swiss Stock Exchange formally opened a London annex to its Zurich homebase. Two City firms have joined so far - the US investment bank Donaldson Lufkin & Jenrette and the British interdealer broker Tullett & Tokyo.

The Swiss stock exchange includes eurobonds in its dealing system. Currently, investors do not use this service because Switzerland charges a stamp duty on trades in eurobonds. But in March the Swiss parliament will consider a law to exempting non-Swiss domiciled investors from this stamp duty.