BRUSSELS (Belgium) - THE European Union on Thursday proposed plans to toughen up rules concerning taxes on foreign interest payments and further eliminate tax evasion which has been endemic in some EU nations.

Three years after setting rules on reporting interest income from other countries, the European Commission admitted they fell woefully short of their target and proposed technical measures to make the rules watertight.

The current measures 'need to be extended, in order to meet our goal of stamping out tax evasion, which affects the national budgets and creates disadvantages for the honest citizens,' said EU Taxation Commissioner Laszlo Kovacs.

And with national budgets increasingly under pressure because of the financial meltdown and recession looming, tax income missed because of tax cheats hurts especially.

'This problem is more than ever acute as governments will be facing the first effects of the financial crisis,' an EU statement said.

Taxpayers have increasingly resorted to setting up tax exempt foundations or trusts. Now the Commission wants the banks and investment companies to better check on the people behind such organisations.

There are fears that more rules would put an added burden on banks and investment houses during times of crisis but the EU Commission said the additional information requested is often already covered by checks banks have to do to catch money launderers. -- AP