Nick Shaxson ■ European Union Savings Tax Directive Amendments – coming very soon?


EuropeWe have written at length about the European Union Savings Tax Directive (EUSD), a scheme involving 43 European countries and other participating jurisdictions to tackle tax evasion by exchanging appropriate information automatically with each other.

Alongside the U.S. Foreign Account Tax Compliance Act (FATCA) and the proposed OECD standards for automatic information exchange, the EU Directive is one of the big international initiatives to promote transparency in international finance, part of an emerging international architecture of transparency. The EUSTD as it currently stands is full of holes, but we have also written in detail about powerful and innovative Amendments waiting in the wings which would plug its biggest holes and help European countries find out about and collect seriously higher tax revenues from their wealthiest citizens. The EU Tax Commissioner Algirdas Šemeta has called these Amendments:

“the most comprehensive information exchange system in the world” to combat tax dodging.

We have written in detail about efforts by Luxembourg, Austria and Switzerland to find ways to sabotage these anti-tax evasion tools, but we have also noted recently that there seem to have been some signs of political progress at last. Even Luxembourg seems to have been making conciliatory noises.  France and Germany seem to be pushing for this.

Well, now we note this, from the agenda of the Council of the European Union:

“Tuesday 11 March 2014
Economic and Financial Affairs Council – Overview of the agenda

The Council is expected to adopt a proposal for a directive on taxation of savings income in the form of interest payments, amending directive 2003/48/EC in order to reflect changes to savings products and developments in investor behaviour with the aim of preventing circumvention of the directive, which came into force in 2005. The new directive includes all types of savings income and products and uses a “look-through” approach, requiring reasonable steps of tax authorities to establish the identity of beneficial owners.”

This would be fantastic news, if it happens. Now guess what? European bankers hate it.

This, from the European Banking Federation (EBF):

“The development of EU standards in parallel with OECD standards may ultimately lead to multiple, overlapping obligations, which could distort intra and extra EU competition and international business. Such an outcome would not be efficient or cost-effective from either a government or business perspective. The EBF would urge EU Member States (MSs) to commit to a single, international AEOI regime. Such a commitment should also entail halting the amending Directives to DAC and EUSD and legislating for a sunset clause on EUSD to take effect when the Common Reporting Standard (CRS) and revised Directive on Administrative Cooperation (DAC) are in place.”

Now that is fascinating. Several things must now be said, in response.

First, it is nonsense to say that it would “not be efficient or cost-effective from either a government or business perspective.” Cracking down on tax evasion, especially using such powerful and new tools, is always massively cost-effective for governments. It is also cost-effective for ‘businesses’ – they benefit from the improved infrastructure and human capital, reduced taxes and reduced government borrowing that would flow from an increase in tax revenues. But it is true that there is one section of ‘business’ that will lose out: those that make a profit from selling criminal tax evasion services. That couldn’t include any members of the European Banking Federation, could it?

Second, it is also wrong to talk about ‘overlap.’ The OECD standards, which have drawn quite heavily on the U.S. FATCA programme, will work alongside the amended EU standards. But, as we have noted, the OECD standards have some  serious shortcomings –  and the EU standards will beef it up by plugging some of those shortcomings, notably in the area of trusts, where it will tackle particularly slippery structures such as discretionary trusts. (We briefly described some of the shortcomings in the OECD standards just after their report was published); we will be producing a far more detailed document outlining our concerns next week. In essence, the citizens of the EU Directive territories will benefit from what could be described as an OECD-Plus system.

Third, the fact that the European Banking Federation are calling for repeal of the EUSTD shows that they are scared of the EUSTD Amendments – which is, for us, excellent confirmation of what we are saying all along: these will be powerful tools, when properly applied. It also potentially confirms our analysis, by telling us that the bankers are not as scared of the OECD standards as they are of the EU’s OECD-Plus regime.

Finally, some basic logic is missing in this part of the EBF’s statement:

“Such a commitment should also entail halting the amending Directives to DAC and EUSD and legislating for a sunset clause on EUSD to take effect when the Common Reporting Standard (CRS) and revised Directive on Administrative Cooperation (DAC) are in place.”

So they want to halt the amendments to the DAC – but then call for some actions once the amended DAC is in place? How could that work, from the point of view of logic?

Let’s hope this gets passed next week. But given the past record of sabotage and delay by Luxembourg, Austria and Switzerland, we won’t be surprised if it isn’t.

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