---

Income Tax

It may be deliberate and for the benefit of the House on this subject that the microphones were not on. The three other bilateral agreements relating to the EU savings directive have been signed between the UK and Anguilla, the Cayman islands and the Turks and Caicos islands. These agreements do not require the UK to provide information to those territories, so it is not necessary for them to be debated by the House. However, I have ensured today that copies of those agreements have been placed in the Library. The House will recall how the agreements came about. It was in 1999 at the Helsinki European Council that the European Union agreed that"““all citizens resident in a Member State of the European Union should pay the tax due on all their savings income””." The UK Government fully supported that principle and believed that exchange of information on as wide a basis as possible is the best way to counter cross-border tax evasion. Original proposals for a directive consisting of an EU withholding tax were rejected by the UK. We fought hard to get an agreement that exchange of information is the right way to counter such tax evasion. Our success was directly attributable to the role that my right hon. Friend the Chancellor of the Exchequer played in that process. The former Liberal Democrat spokesman on these matters conceded in Committee on 14 March that avoiding the withholding tax was ““a battle well won””. The EU savings directive, as adopted, will not put at risk the competitiveness of EU financial markets, as an EU-wide withholding tax certainly would have done. Under the directive, paying agents will report details of payments of savings income—essentially interest income—that they make to individuals resident in prescribed territories. Paying agents will make reports annually to HM Revenue and Customs, which will pass the details to relevant tax authorities in the other member state. The UK will receive information on UK residents who are paid savings income by paying agents in those countries. The EU recognised the strong arguments also advanced first by my right hon. Friend the Chancellor that the global nature of financial markets meant that the principles of the directive also needed to be adopted in financial centres outside the European Union before the directive could go ahead.