After a five-year delay, the European Union directive on automated sharing of tax information is now poised to move forward throughout the bloc as Austria and Luxembourg withdrew their objections to the law last week.
Designed to crack down on tax evasion and bank secrecy, the EU Savings Tax Directive calls for the automatic exchange between national tax authorities of information gathered from banks and financial institutions. It enables Member States to collect income data on non-residents and share it with tax authorities where the individual or company is based.
While 26 Member States already agreed to the 2008 directive, Austria and Luxembourg blocked the law and were allowed to apply a 35 percent withholding tax instead of participating in the automatic information exchange, according to the European Commission. Those two countries had balked at the directive because of concerns that non-EU countries seen as tax havens, like Switzerland, would not have to follow the same rules.
Luxembourg Prime Minister Xavier Bettel told the Wall Street Journal last week that his country and Austria would move forward after receiving assurances from other EU leaders that deals with Switzerland, Liechtenstein, Monaco, Andorra, and San Marino would be made quickly, ideally by the end of the year.
That guarantee “allowed us, with Austria, to give the green light. The Luxembourg market is ready for this,” Bettel was quoted as saying by the Journal.
The Journal also reported that Austrian Finance Minister Michael Spindelegger told reporters his country was ready to implement the directive. “It's clear that we cannot wait until a deal with third parties is concluded,” he was quoted as saying.
The European Commission already has been negotiating deals with Switzerland and the four other countries to bring them in line with the EU directive. An EU-Swiss agreement already has in place the 35 percent withholding tax provision for payments to EU citizens, similar to the approach used by Austria and Luxembourg, according to the commission.
Oxfam praised the development, saying the EU has “set the bar” for other developed nations in the fight against tax evasion and bank secrecy.
“Today's decision marks a major step in the fight against tax evasion,” Natalia Alonso, head of Oxfam's EU office, said in a statement. “From now onwards, European governments will have in place a check on the €850 billion lost in tax evasion each year in the EU, which could pay for public services at home and in poor countries. Europe can be proud in leading the move towards a more transparent financial system.”
Alonso also called on the EU to assist poorer nations in developing the capacity to share tax data with others. “Only with a truly global and inclusive system to share information can the world pinpoint those individuals and companies harboring money away from the world's poorest,” Alonso said.
Last month G20 finance ministers endorsed the concept of a single, global standard for the annual automatic exchange of information between national tax authorities. Implementation details are expected to be discussed at the ministers' next meeting in September, Oxfam reported.
Organisation for Economic Co-operation and Development (OECD) Secretary-General Angel Gurría hailed the change in position by Austria and Luxembourg, as well as a pledge last week from more than 40 nations and territories to adopt an aggressive timetable for implementing the new global standards on tax evasion. The “early adopters” group, which includes the United Kingdom and Germany, pledged to implement new rules on opening accounts and tougher due diligence requirements for existing accounts by 2016.
Gurría said the developments were good news for anyone wanting “a fair and transparent international tax system.”
“The rapidity with which the new norms are being developed and agreed shows that the political momentum for reform is now overwhelming,” Gurría said in a statement. “Adopting the new global standard is not just a question of establishing cooperation between states, it is also about restoring the trust of citizens in government.”