EC deadline gives tax systems a headache

EU member states may have just two years to set up an electronic database of all their national tax returns because of an EC directive.

Despite the fact that IT resources are already stretched by euro conversion and year 2000 problems, the EC hopes to turn its directive into national law next year.

The directive proposes to close a tax loophole that enables people to save large amounts of money in off-shore tax havens while living elsewhere.

If the directive is adopted in its current form, member states will have to develop IT systems which cross-reference individual tax returns with interest statements from all relevant banks.

The forms would itemise which interest was earned from which bank. Before self assessment was introduced in the UK, tax returns were categorised in this way. But the current forms only ask for the total amount of interest earned each tax year.

The Inland Revenue's fledgling electronic system would have to go back to old methods in order to implement the directive. "This directive would have programming implications for our database," an Inland Revenue spokeswoman told Silicon News. "But the directive will certainly not go ahead in 2000, as we have not heard anything about it until now."

The timing of the directive is still under discussion. Cliff Dammers, secretary general of UK leading financial trade union, the International Primary Markets Association (IPMA), told Silicon News: "A panel of experts will be advising the Council of Ministers on this issue in early September." He added that the EU hopes to implement national legislation next year, with the systems up and running by 2000.

Dammers said: "It took ten years to set up a similar system in the US. I expect they will have to delay the directive due to a lack of IT resources."

Around 12,000 people file their tax returns electronically in the UK, but the number is growing.