The ability of Europe's less scrupulous taxpayers to salt undeclared money away in bank accounts throughout the European Union took a knock yesterday with the publication by the Commission of a draft directive on the taxation of cross-border bank deposits.

The directive will require member states to impose a minimum withholding tax on EU citizens' bank deposits of 20 per cent or provide other member states' tax authorities with details of accounts of their citizens. To avoid double taxation, states will be required to credit withholding tax to its taxpayers if paid in other member states.

Withholding tax would not be payable on accounts held by third country nationals.

The proposal forms part of a package of measures on taxation agreed by Finance Ministers and then by heads of government in December, the other half of which, a code of conduct on corporate taxation, was targeted at countries like Ireland. The Minister for Finance, Mr McCreevy, said on Tuesday, however, that he welcomed this measure, likely to raise some money for the Irish exchequer.

The directive, which will now go to ministers for approval, is the result of a lengthy row between a group led by the Germans and Luxembourgers over the latter's willingness to harbour tax-free, and in complete anonymity, billions of marks of undeclared non-resident savings. The result was a considerable drain on the tax-raising ability of Bonn and others. The proposals are to be presented to finance ministers for the first time in Luxembourg on June 5th, clearing the way for detailed negotiations to get underway under Austria's EU Presidency in the second half of the year. It will have to be agreed by unanimity.