EU proposes tougher rules to tackle tax evasion
BRUSSELS (AFP) — The European Commission on Thursday proposed new measures to clamp down on tax dodgers who stash their cash in offshore accounts or use tax-free intermediaries.
Current European regulation, "although effective within the limits of its scope, can be easily circumvented," EU Taxation Commissioner Laszlo Kovacs said in a statement.
The problem has been highlighted during the current financial crisis, with tax havens such as Liechtenstein and Luxembourg put under the spotlight.
It will also be on the agenda at this weekend's G20 summit in Washington, dedicated to the global financial and economic crisis.
The scope of the rules "needs to be extended in order to meet our goal of stamping out tax evasion, which affects the national budgets and creates disadvantages for the honest citizens," Kovacs added.
The measures were drawn up after EU finance ministers, under pressure from Germany, called for the 2005 savings taxation directive to be reviewed in light of revelations of alleged tax fraud by rich Germans hiding their cash away in Liechtenstein.
To tackle the tax evasion problem, the EU's executive arm proposes to seal up loopholes it has identified in the bloc's current Savings Taxation Directive.
In its present form, the directive requires EU members to share tax information with each other on interest income kept by account holders from other EU countries.
However, there are special arrangements for Austria, Belgium and Luxembourg to protect their jealously guarded banking secrecy.
The EU has similar bilateral agreements with a clutch of countries and territories known for their banking secrecy laws, including Switzerland and Liechtenstein.
At a press conference, Kovacs said he doubted whether the new rules "would work" unless the key non-member states like Switzerland and Liechtenstein came on board along with financial centres in EU member territories such as Britain's Isle of Man and the Dutch Antilles.
The current rules allow considerable scope for people to set up non-charitable trusts and foundations in order to get around the rules.
Under the proposed changes such trusts and foundations will be included, meaning they will have to share information or pay a withholding tax.
That will apply both to foundations outside the EU receiving interest payments from a European bank and to an establishment outside Europe paying interest to a foundation in Europe.
The new rules would also extend the tax measures to "innovative financial vehicles" rather than just "a classical savings account in a bank."
The commission wants to see the directive extended to securities where the capital is protected and the return on investment pre-defined as well as life insurance policies with 95 percent or higher protection of capital and guaranteed revenue.
The proposals would also "ensure a level playing field" for investment funds so that income obtained from all such funds by EU residents will be subject to "effective taxation."
However, EU members are deeply divided on tackling banking secrecy.
Austria and Luxembourg have been unenthusiastic about reform, which would need unanimous backing to go ahead.
Luxembourg Prime Minister Jean-Claude Juncker gave the proposals a cautious welcome, saying they appeared to be "a good basis for discussion."
"That's a way of saying that the Luxembourg government does not reject all changes to the savings directive out of hand," he added.
The commission's regulatory proposals must still be approved by the 27 member states and parliament before they can come into effect.
