European leaders met this week at a summit intended to decide upon aggressive policies to tackle tax evasion, but the results were far from conclusive, not least because of continuing opposition from Austria and Luxembourg on introducing a yearly automatic exchange of bank account information between member states. Mediapart’s Brussels correspondent Ludovic Lamant reports on the outcome of Wednesday’s talks, and examines whether the European Union is truly capable of acting as the umbrella organisation to halt a tax drain that is estimated to cost its members a combined 1 trillion euros per year.
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It was at the end of the April 2009 G-20 summit held in London when then-French President Nicolas Sarkozy announced, in a remark that would soon come back to bite him, that “tax havens, they’re finished”.
Speaking at the end of this Wednesday’s European Union (EU) summit in Brussels, where EU leaders met to establish effective common policies to fight tax evasion, François Holland cut a more prudent line than his predecessor. “Opaqueness is on a path of extinction,” he commented.
Indeed, the summit (which also featured unrelated discussions on energy policies) had produced few results of note. Hampered by the EU regulation that demands policies be passed by unanimous agreement from all 27 member countries, a vote on the most significant decisions on fighting tax evasion were postponed to a future summit in December because of the positions of Luxembourg and Austria, two countries which have consistently shown no enthusiasm for a major crackdown.
Enlargement : Illustration 1
European Commission (EC) President José Manuel Barroso implicitly suggested that the EU was not best adapted to lead the battle against tax evasion when he said on Wednesday: “Beyond what we can do at a national or European level, the EU must promote international standards, within the G8 in particular, but also within the G20, the OECD and in lots of other frameworks.”
The combined cost to member countries of legal tax avoidance and illegal tax evasion is estimated by the EC to total a staggering 1 trillion euros per year. “Which amounts to 2,000 euros per year per citizen,” commented European Parliament president Martin Schulz in his opening speech to the summit. Herman Van Rompuy, the Belgian president of the European Council, announced the estimated sum in April, explaining that it was equivalent to “the entire GDP or total income of Spain” adding: "It is about the same as the Union's budget for the full seven years ahead, and it is one hundred times more than the loan that was recently agreed for Cyprus." Concerning France alone, the French finance ministry estimates that tax evasion represents a loss to the public purse of between 60 and 80 billion euros per year.
One of the major subjects of the discussions on Wednesday was the establishment of a once-yearly automatic exchange of tax information between all member countries, as laid out in a savings directive initially drawn up in 2005 and revised last year, but which has not yet been adopted. Under the directive, each country would inform another about the bank accounts opened within its borders by the other’s nationals. The modifications made last year served to remove loopholes that could have allowed some countries to sidestep the tax information reporting requirements.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD), acting on a request from the G20, is currently studying how to make such an automatic exchange of banking information part of a commonly-recognised international standard.
But despite strong pressure - from France and Britain in particular - that the EU loses no further time in applying the directive, Luxembourg and Austria have rejected it. In an interview just weeks before the summit, Luxembourg’s finance minister Luc Frieden had suggested that his country was at last ready to do away with banking secrecy. But this week it again sided with Austria in refusing to agree on an automatic exchange of banking information - until the EU obtained agreement from non-EU Switzerland and Andorra that they would also comply.
European Council president Van Rompuy wrapped up Wednesday’s proceedings by announcing a compromise whereby the EU would begin negotiations with Switzerland “as soon as possible”, while the modified savings directive that includes automatic information exchanges would be adopted at the next summit on fighting tax evasion, to be held in December. Importantly, in its official final statement issued later on Wednesday, the Council said the EU would work to broaden the scope of information to be provided in the automatic information exchange.
There remains however the problem of convincing Switzerland into agreeing to adopt rules that some EU member states themselves refuse to. “It is not the outcome of these negotiations [with Switzerland] that will decide Europe’s position regarding the savings directive,” said President Hollande on Wednesday, although the Council’s conclusions published the same day were less certain.
But while the EU apparently cannot reach unanimous agreement on the fight against tax evasion, a move led by France, Britain, Germany, Italy and Spain is underway to establish a pilot agreement for the exchange of tax-related information based along the lines of the US Foreign Account Tax Compliance Act (FATCA). The US legislation, due to be enforced as of January 1st 2014 and which involves signed treaties with countries around the world, not only requires US taxpayers to declare their financial assets held abroad, but for also for foreign banks and other financial institutions to report assets owned by US taxpayers. If they refuse, FATCA allows for the imposition of financial penalties on individuals, financial institutions and states.
A total of 16 EU member countries are now interested in signing up to the European pilot ‘FATCA’ scheme, according to a provisional list drawn up during a separate summit of EU finance ministers earlier this month. The scheme is to be the subject of further discussions between the interested parties on the sidelines of a European Council meeting in June. In theory, its terms would require the transmission of much wider information than the EC savings directive, which is currently limited to information concerning savings accounts. However, it appears little likely that the scheme would include the threat of financial penalties as set out in the US FATCA.
The results of the summit this Wednesday were similarly weak regarding the other major issue on the agenda - the issue of corporate tax avoidance which is made possible by the expert exploitation of loopholes in international legislation. It appeared conceivable that the recent case of Apple, accused by US Senate committee earlier this week of being "among America's largest tax avoiders", would have set the tone for stern and united decisions.
The Senate committee found that "Ireland has essentially functioned as a tax haven for Apple", which paid just 1.9% tax on its overseas profits of $37 billion in 2012 thanks to a tax avoidance scheme set up in 2009.
But, once more, the EC was given until December to draw up proposals to clamp down on the loopholes that allow legal, if immoral, corporate tax avoidance. In its concluding text on Wednesday, the European Council said it would await the results of an OECD study on the question, despite the fact that the organisation has already detailed the problems to be tackled in a severe two-part report. The indispensable issue of tax harmonisation among the 27 EU member countries didn’t even figure on the Council’s future agenda.
Finally, the extent of the EU’s impotence to tackle tax evasion was illustrated by its continuing refusal to publish a list of what it collectively defines as tax havens. The closest it has come to this was a Commission guideline issued last December setting out the criteria that applied to the term 'tax haven', in order for each member country to establish its own list.
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English version by Graham Tearse