"Our present tax laws make the United States one of the best tax havens in the entire world for non-Americans (nonresident aliens and foreign corporations). For example:

"Non-Americans are exempt from U.S. income tax on the interest they receive from U.S. banks and savings institutions."

That statement is as true today as it was when I made it some 22 years ago. Moreover, most other countries similarly exempt bank deposit interest paid to nonresidents. Yet, the US and most EU countries do seek to impose income tax on bank deposit interest paid to residents whether it is earned in the taxpayer's country of residence or elsewhere.

As stated in a very recent OECD report on Tax Systems in European Union Countries:

"Since some tax administrations do not exchange interest information on an automatic basis, or apply a withholding tax on every non-resident's savings income, residents of Member States may be able unlawfully to escape the tax on this income imposed by their residence country, as well as lawfully earn the interest free of tax in the source country."

This situation is changing. The EU, with the apparent assistance of the OECD Committee on Fiscal Affairs, wants to require all EU countries and many non-EU countries with substantial bank deposits to exchange interest information concerning bank deposits and other savings interest on an automatic basis.

In 1998, the European Commission proposed a directive on the taxation of cross-border savings of individuals. That proposal was intended to ensure a minimum effective tax on cross-border interest payments within the EU, either by a withholding tax or automatic exchange of information. The 1998 proposed directive met with substantial opposition from several EU member countries. Some countries felt that if EU countries were forced to impose a withholding tax or automatically exchange information concerning savings income, most deposits and other interest-bearing investments would be moved to other countries outside the EU. A compromise was agreed to in principle in 2000 with the understanding that the EU would negotiate with the US, Switzerland and some other non-EU financial centres over adopting similar measures. Austria and Luxembourg indicated that their eventual approval of any such directive would be conditional on the EU Commission reaching an agreement with key non-EU financial centres.