Commission presents far-reaching anti-tax evasion measures

Algirdas Šemeta, Member of the EC in charge of Taxation and Customs Union, Audit and Anti-Fraud. (EC Audiovisual services).

As from January 2015 dividends, capital gains and all other financial incomes and bank account balances will be added to the currently existing restricted list of categories subject to the automatic exchange of information between the EU tax authorities, according to a proposal by the EU Commissioner Algirdas Šemeta. Practically today only interest on bank deposits (not account balances) paid in another EU country is reported to the tax authorities of an EU citizen’s residency.

This is a major breakthrough in fighting tax evasion in the European Union. By this bold move Šemeta exerts strong pressure on the few countries which disagree with this new approach. In this respect it will be very interesting to observe the reaction of some member states, which in the face of it appear as leaders in anti-tax evasion campaign, but in reality are quite reluctant to transmit information on foreign citizens’ incomes earned in their territory.

Up to now only Austria, Luxembourg and Malta have expressed reserves over the extended automatic exchange of information between the EU tax authorities. In reality though it is Britain with the City of London financial centre that make the most out of offering opportunities to world’s tax evaders. Under the new Commission proposal the British tax services will be obliged to interfere in foreign citizen’s financial transaction in their territory and report the results of their investigation to the tax authorities of another EU member state.

Who cares most

Consequently this Commission proposal will expose the hidden interests of certain EU member countries, in respect with the lucrative business of tax evasion. On top of that the results of this EU discussion will be also heard loudly in the G8 and G20 conference rooms, since those groups have placed anti-tax evasion action on the top of their agendas.

As Šemeta said, “At first glance, this might seem to be a purely technical adjustment to administrative cooperation rules”. Obviously it is not. Of course it is not yet clear what kind of incomes and capital gains will be finally included in the automatic exchange of information between the EU tax authorities. If however it will be an unobstructed exchange on all income and capital gains earned by residents in another EU member state, then this ‘technical’ extension becomes quite substantial.

The scope of the mandatory exchange of information between member states is obviously of fundamental importance. In this respect the Commissioner reminded that as from next year the FATCA agreement will oblige Member States, to transfer extensive data to the US authorities on the accounts of US citizens in their territory.
In view of that Šemeta observed that “under EU law, we have a “most favoured nation clause”, to ensure that Member States share as much information with each other as they do with any non-EU country”. It will be a shame however if the FACTA will be more effective than the obligations of EU member states between each other stemming from EU proper legislation. As a result the Commission wants to ensure that the automatic exchange of information within the EU matches and even goes beyond than FATCA. This is another reason for this bold action by the Commission.

The good Commissioner knows however that those things are much more complicated that they seem. He said “Many Member States had expressed a desire to do this under a “pilot project” of bilateral and multilateral exchange agreements”. He added then that, “I firmly believe that an EU approach is better than a patchwork of bilateral arrangements”.

It goes without saying that this approach adopted by certain member states comes under the issues raised above, in respect with Britain that is to reduce the scope of information exchange. Knowing all that the Commission is now ready not only to place all EU member states before their obligations, but to extend this to the G8 meeting next week. To this effect next week, “President Barroso will press our international partners to do the same” concluded the Commissioner.