Europe to Crack Down on Offshore Tax Management

Europe to Crack Down on Offshore Tax Management

Europe is to toughen up action against tax fraud and tax management against several key financial centres.

The European Commissioner for Taxation Algirdas Semeta has issued a hard-hitting statement about steps European Union nations are set to beef up pressure against financial centres to urge them to lift the veil on banking secrecy for non-residents.

The EU has suggested a two-tier approach to banking that gives residents financial secrecy, but offers full transparency to tax authorities over the holdings of non-residents.

The idea is similar to the US FATCA (Foreign Account Tax Compliance Act) which requires foreign banks to tell the US government about the financial affairs of US taxpayers.

Target nations named

Semeta explained he was disappointed with slow negotiations with five  ’third countries’ on savings taxation, as he felt these talks were a chance to discuss how to bolster the fight against tax fraud and management with key partners.

He specifically named Switzerland, Austria and Luxembourg as three of the nations targeted by the EU.

“If some states want to maintain domestic banking secrecy for a resident, that’s their choice. Our discussions do not put this into question,” he said.

“This argument doesn’t fly when it comes to taxing non-residents. The EU approach does not impose anything on Austrian or Luxembourger residents, but lets the other 25 member EU states to ensure fair taxation of their own residents, according their national rules.”

Semata also revealed the European Commission was investigating how to pass sanctions on financial centres that offer banking secrecy and aggressive tax management.

Tax loopholes

Some of the ideas under consideration include:

  • Negotiating savings agreements with third countries
  • Setting up a pan-European tax information exchange between governments
  • Looking at better tax arrangements between European nations

“Beyond legislative instruments, the EU should consider pragmatic tax coordination and support coherent action in relation to third countries, while taking relevant work in international fourms like the OECD in to account,” said Semata.

“The EU should support the dissemination of best practices with regard to the national systems for enforcement of tax laws and effective collection of taxes.”

Britain is leading the way in closing tax loopholes. A FATCA treaty has already been signed with the US Treasury, while a tax agreement over undisclosed assets in Swiss ban accounts starts from January 1, 2013.

Germany is also negotiating similar tax deals with the US and Switzerland, while France, Spain and Italy also want FATCA deals with the US.