Global Policy Forum

By Stephen Castle

Under pressure from Germany, the European Union on Wednesday agreed to consider a new clampdown on tax havens, despite the opposition of one country, Luxembourg, which said it saw no reason to change the existing law. In what is likely to become a lengthy negotiation, the European Commission will propose the expansion of a directive that aims to ensure that EU citizens do not evade taxes on the interest from savings by opening accounts abroad.

Tax havens have been in the spotlight since February, when Germany cracked down on tax evaders in Liechtenstein. Germany persuaded EU finance ministers to speed a planned review of the savings legislation after revelations of tax evasion. Since then, concern has spread, with the tax authorities in Australia and New Zealand carrying out raids and audits on wealthy residents. Most recently, on Tuesday, the authorities in the United States indicted a former banker for UBS, Switzerland's biggest bank, on charges of helping a wealthy American real estate developer evade taxes on $200 million held in bank accounts in Switzerland and Liechtenstein.

Speaking at a meeting of EU finance ministers on Wednesday, the EU commissioner responsible for taxation, Laszlo Kovacs, said he would propose an extension to the scope of the EU's directive on the taxation of savings, which applied primarily to bank accounts. This could be done by expanding the list of products covered, perhaps to include trusts or foundations, or by applying the law to legal entities rather than just individuals, Kovacs said. On Wednesday Germany's finance minister, Peer Steinbrück, highlighted the way in which investment foundations circumvent the current EU savings tax directive, which applies only to individuals. "They are founded to cheat the tax authority," he said.

European countries say they lose billions of euros in revenue because of tax evasion. There are no precise Europe-wide figures, but Germany alone claims it loses as much as €30 billion, or $46.4 billion, a year. EU finance ministers set a deadline of Sept. 30 for the European Commission to complete an interim report on how effectively the current rules have been implemented. Kovacs said he would then "present some concrete amendments on how to amend it." But that will only be the start of a difficult discussion. The current directive took around 14 years of tortuous negotiation before it came into force in 2005. The EU law operates in 42 jurisdictions: the 27 EU nations plus Switzerland, Liechtenstein, San Marino, Monaco and Andorra as well as 10 former British and Dutch colonies.

On Wednesday, Luxembourg, which has a developed an important financial center and which defends banking secrecy, underlined its opposition. Luxembourg's treasury minister, Luc Frieden, said he saw no loopholes in the current rules. Any changes "would certainly need a lot of time," he added. Any amendment must be agreed to by all 27 nations. Luxembourg, Austria and Belgium have refused to supply information on savers' accounts to other countries, applying a withholding tax instead. "On the scope we are open to discussion but Austria will always defend its banking secrecy," said Austria's finance minister, Wilhelm Molterer.