EU ready to relinquish its internal tax havens

The upcoming Ecofin and Eurogroup meetings in Dublin on 12 and 13 April may be informal but they are expected to introduce a ground breaking policy initiative. The new idea is that the 27 European Union countries should mutually abolish their banking secrecy rules and practices vis-à-vis the tax authorities of all member states. In short the EU is about to relinquish its internal tax havens. According to the new plan detailed information about citizens’ bank accounts should be mutually and automatically supplied on judicial or tax authority requests, amongst the 27 EU member states. The initiative may look like being of German origin but it has the backing of all the major capitals of Europe, including London and Paris. Wolfgang Schauble, the German Federal Minister for Finance, asked last week that this theme must be introduced in the agenda of both meetings. The issue touches on two very sensitive subjects which have been tormenting the European Union of the 27 members states and more so the Eurozone of the seventeen countries. It’s about the internal ‘tax havens’ which reputedly exist in Cyprus, Malta, Estonia, Luxembourg and probably in Austria, Slovenia and elsewhere in the European Union. The timing of this new policy initiative is obviously related also to the creation of the European Banking Union and the problems of failing banks in certain member states with overgrown financial sectors, which usually exist in tax havens. In the cases of Malta, Cyprus and Ireland the assets of the banking sector surpass by eight times the GDP of the country, while in Luxembourg this ratio skyrocketed in the double-digit region. Obviously the central EU powers, that is Germany, France and Britain would love to see much of the business now conducted by all those small peripheral EU financial centres, to be diverted to London, Frankfurt and Paris. It’s not only that however. In the case of Germany and France there is also a strong interest to avoid more unpleasant surprises from this built-in unknown factor in Eurozone’s financial markets. Related to this it’s the taxpayers’ cost of rescue operations of banks and countries alike, as in the cases of Ireland, Spain and Cyprus. Italy will probably be the next entry in this list. Vienna’s fortification The strongest opposition however to this new EU action against tax evasion came from unexpected quarters. It was not Luxembourg or Malta but Austria the country that said decisively no to the opening of its bank accounts for the legal and tax authorities of the other 26 member states to watch. The Austrian government is the only one to resist this. Luxembourg’s Prime Minister Jean-Claude Juncker said that the Grand Duchy will materially relax its bank secrecy laws vis-à-vis the authorities of the other EU member states, arousing though internal political reactions from opposition parties. As the issue develops Vienna is now the only EU capital insisting in keeping impenetrable fortifications around its banking industry. According to a yesterday’s statement by Algirdas Šemeta, the EU Commissioner responsible for taxation, customs, statistics, audit and anti-fraud, “over the past few days, many of the Member States have reviewed where they stand on these issues and intensified their political will to act. Now it is time to put words into action. I hope to see rapid adoption of our proposals for a stronger EU stance against tax fraud and evasion”. After Vienna’s negative announcement Šemeta came back and issued a strong reaction naming directly at Vienna’s fortifications. He said that the Austrian attitude is non-sustainable because all the other 26 capital have already agreed to mutually open their gates to tax authorities. The last act on this will be played in Dublin this Friday.