Reuters Edge

EU executive targets bank secrecy in tax probes

BRUSSELS (Reuters) - European Union states won’t be able to fend off tax evasion inquiries by hiding behind bank secrecy rules under a proposal to be adopted on Monday.

European Commissioner for Taxation and Customs Union Laszlo Kovacs gives a news conference on the proposal of reduced VAT rates at the EU Commission's Headquarters in Brussels, July 7, 2008. REUTERS/Sebastien Pirlet

The measure is part of wider EU efforts to snare people who exploit loopholes in rules to escape the taxman.

“The European Commission will approve a reform of the mutual assistance in the assessment of taxes in other countries and it would cover all taxes, including value added tax and excise duties,” EU Tax Commissioner Laszlo Kovacs told Reuters.

The proposal, which will need the backing of all 27 member states to become law, allows an EU country to request information about one of its citizens living in another member state.

It targets Luxembourg, Austria and Belgium which have local bank secrecy rules in place.

“For example, the German tax authorities will have the right to request information on a German resident in Belgium and Belgium should not decline it. It will have no impact on the relations between the Belgium tax authority and the Belgian resident,” Kovacs said.

“A state cannot decline the request by using bank secrecy as a kind of argument. It should provide the information. I expect majority support and when you have that I expect sooner or later the two or three member states who are opposing will finally give in,” Kovacs said.

The cross-border recovery rate of unpaid taxes is about 5 and tax evasion has become a major issue for cash-strapped EU finance ministers.

Germany was incensed that some of its citizens were squirreling away cash in neighboring non-EU Liechtenstein.

Kovacs believes that by adopting this measure it will also give the bloc leverage in dealing with non-EU tax havens.

“This will certainly help EU member states when they are negotiating this kind of cooperation with some third countries, including some tax havens that normally reject any kind of information request,” Kovacs said.

“Today, the tax havens say ‘you don’t have this system even in the European Union so why do you expect us to give you information’,” Kovacs added.

The measure will also radically alter the debate on a separate proposal Kovacs made in November to tighten up the bloc’s rules that tax savings a citizen from one EU state has in another or in non-EU states like Liechtenstein and San Marino which signed up to the law.

The reform widens the scope of the savings tax rules to include foundations that were used in Liechtenstein by German investors.

The savings tax reform has yet to be adopted with EU states like Luxembourg saying it was not needed. Under the current EU savings tax regime Luxembourg, Belgium and Austria were allowed to keep their bank secrecy rules by adopting a version of the law that is different from the rest of the bloc.

Kovacs does not expect the savings tax or mutual assistance reforms to be adopted under his watch which ends in November.

Additionally, the savings tax reform is unlikely to take effect unless the 15 third country jurisdictions which signed up to the original measure also back the updated version.

“I think the new Commission can finalize the agreement within a year,” Kovacs said.