EU summit to grapple with tax havens, evasion and fraud

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The European Commission's recent push against tax havens is likely to be diluted into a wider list of issues related to fighting tax evasion and fraud, according to documents seen by EURACTIV.

The fight against tax havens was added to the agenda of the 22 May EU leadership summit, originally intended to focus on energy issues.

>> Read: EU leaders to square the circle of cheap energy

But European Council President Herman Van Rompuy, who chairs the regular EU summit meetings, added taxation to the agenda after recent media reports exposed the magnitude of tax evasion.

"Every year around €1 trillion is lost in EU member states because of tax evasion and tax avoidance," Van Rompuy said in a message addressed to EU leaders ahead of the summit.

That amount represents the equivalent of the GDP of Spain or about the same as the Union's budget for the next seven years. It is also 100 times more than the bailout recently agreed for Cyprus.

However, the guidelines for the summit conclusions, prepared by Van Rompuy, speak of tax evasion in broader terms, mentioning that only half of the value added tax is collected in the Union. Another issue is “aggressive tax avoidance”, as recently highlighted by US coffee retailer Starbucks which skirts taxes by reporting no or low profits.

Automatic exchange of information

Meanwhile, EU finance ministers pledged greater information-sharing to counter tax evasion.

At a meeting held in Dublin on 12 April, Austria appeared isolated for its continuing refusal to share information on bank deposits. Later, on 27 April, its Chancellor Werner Faymann said that it also seeks to give other EU countries access to foreigners' bank account details, as long as banking secrecy for Austrians is preserved.

In a letter sent to EU leaders on 8 May, European Commission President José Manuel Barroso advocated extending the principle of automatic exchange of information to all forms of income, which includes capital gains, dividends and royalties. At present, the EU directive on taxation of savings only covers interest income.

Buy the draft summit conclusions have little ambition in this regard, calling for the "acceleration of work on further extending scope of automatic exchange of information at EU level, in particular on a broader range of income.”

Germany, France, Britain, Italy, Spain and Poland have called for a European agreement modelled on the US Fair and Accurate Credit Transactions Act, which requires citizens to report financial interest held overseas.

Asked what would be the realistic expectations from the summit with Austria still resisting the automatic exchange of information, Commission spokeswoman Pia Ahrenkilde Hansen said a meeting of finance ministers on 14 May was an intermediary step which might overcome such hurdles.

“We are not yet there, [but] we hope to see significant progress there ahead of the European Council,” she said.

The Socialists and Democrats group in the European Parliament issued a statement, regretting the opposition from the banking and financial sector to financial transaction tax, or FTT.

“Although the 11 ministers clearly stated that they wanted a watertight tax … some of them now seem to be arguing for various exemptions for pension funds, bonds and transactions between banks,” said MEP Anni Podimata (S&D, Greece), who is author of the European Parliament report on the FTT.

"I want to reaffirm my conviction in this essential and fair tax and urge the group of 11 member to progress towards a consensus. They must converge on a solution soon, to avoid unnecessary speculation on the future of this project."

Tax evasion deprives EU governments of roughly €1 trillion annually, according to estimates.

France, in particular, wants to underscore its determination to tackle tax fraud.

Although limited in scope, action to tackle tax evasion at European level has proven to be effective. Under the EU Savings Directive, for example, member countries exchange information on non-resident tax-payers to the value of €20 billion.

The challenge now is to deepen such cooperation and strengthen common tools. In this respect, agreement by member states on the revised Savings Directive is essential.

  • 14 May: EU finance ministers meet to help prepare summit decisions
  • 22 May: EU energy summit
  • December: EU ministers to report back on the topic of tax evasion and avoidance

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