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BackIn June this year, the European Commission proposed a Directive on implementing a mandatory automatic exchange of information in the field of taxation. However, the objective of the draft is not the Europeanization of national competencies with regard to collecting taxes. Instead, national tax authorities of the Member States shall only automatically exchange certain financial information. Rapporteur George Sabin Cutaş (S&D), member of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament has commented on the draft proposal. The first debate in the Committee on the draft report by Cutaş was largely free of conflict and consensus-oriented. Will the automatic exchange of information be implemented?
The draft proposal of the Commission
In early summer 2013, the European Commission, under the auspices of Algirdas Šemeta, published a proposal for a Directive as regards mandatory automatic exchange of information in the field of taxation. This legislative act shall add key elements to an already existing Directive. The intention is to make the new mechanism, which will also cover information on dividends, capital gains and other financial incomes and account balances, mandatory for all Member States from 2015. The previous Directive 2011/16 only included five categories on income and capital, which have to be taken into account regards exchange of information: employment, life insurances, pensions, director´s fees and ownership of resp. income from immovable property.
The aim of this reform is the creation of more transparency in tax-related issues at European level. The objective of an automatic exchange of information is to ensure that national tax authorities cooperate to improve their own standard of knowledge to enable them to tackle tax fraud and tax avoidance more effectively.
Hence, this Directive is within the context of other initiatives on combating tax fraud, tax evasion and tax avoidance. These issues were recently discussed at the G20 summit in St. Petersburg, where consensus with regard to the necessity of a global automatic exchange of information has been reached. In addition, the US has concluded the so-called “Foreign Account Tax Compliance Act” (FATCA) with the EU Member States.
Draft report in the European Parliament
The Committee on Economic and Monetary Affairs (ECON) of the European Parliament discussed this draft proposal by the Commission on 24.09.2013. To begin with, rapporteur George Sabin Cutaş outlined his opinion. He largely agreed with the ideas of the Commission; however, added three important issues.
First, a sanction mechanism for national states not complying with the regulations had to be included. However, Cutaş failed to provide a more precise concept as to what possible sanctions should exactly look like. None of the MEPs contributing to the following debate in the Committee addressed this subject.
Cutaş also requested to explicitly consider the EU’s data protection regulations in the proposal of the Commission. Other parliamentarians supported this request, in particular in view of the current revelations concerning the activities of NSA and other European Secret Services.
The third proposal by Cutaş, which was readily accepted by all other members of the Committee on Economic and Monetary Affairs (ECON), concerned agreements with third countries. A respective mandate should be given to the Commission, enabling it, similar to trade issues, to hold negotiations with third countries in respect of an automatic exchange of information on its own. This is based on the central idea of the benefit, a strong single approach of the European Union would bring. Unified agreements with third countries, which have been negotiated by the Commission, would mean transparent framework conditions for all Member States.
Cutaş pointed out that the exchange of information between the US and the EU Member States in matters of taxation based on the “Foreign Account Tax Compliance Act” (FATCA) would cause an imbalance. There would be more transatlantic transparency in the field of taxation than within the EU itself. The new Directive would have to address and change this as quickly as possible. Apart from that, leading negotiations by the Commission in this matter had provided a better, more uniform result.
Debate in the Committee
All factions of the European Parliament largely welcomed the proposal of the Commission and the draft report of George Sabin Cutaş. Great willingness was signalled in general to ensure that this Directive could be adopted by Parliament as quickly as possible.
There were only slight points of friction regarding the relationship between the EU and the US, which Cutaş had mentioned. Representatives of the European People’s Party (EPP) and the Liberals (ALDE) voiced doubts whether any orientation towards the US, in view of the current NSA spying scandals, would be really such a good idea. Apart from that, the European Parliament had to be careful with regard to tax-related issues not to give the impression it had the intention to mutualize national competencies. Both aspects could harm the image of a certainly necessary reform and would make gaining the support of the population for this Directive significantly more difficult.
Conclusion & Perspective
What is noticeable concerning the issue of automatic exchange of information in the field of taxation is the fact that there is broad consensus through all factions of the European Parliament is on principle. This mechanism is regarded as a useful and necessary means in the fight against tax fraud, tax evasion and tax avoidance. However, there are still some technical questions to be clarified. The first reading of the Directive proposal of the Commission will take place on 4 November 2013 in the Committee on Economic and Monetary Affairs (ECON) of the European Parliament. It is unlikely that MEPs will vote against this proposal of the Commission. However, one has to see how the Council of the European Union will decide in this matter.
Here, the debate could be somewhat more heated. After all, such an exchange of information might weaken the banking secrecy in Austria and Luxembourg in its current form. When finally Luxembourg relented, Vienna too has softened its position and agreed to abolition for foreigners within the scope of the automatic exchange of information. However, bank details of Austrians would not be made available to other EU countries. Nevertheless the Council has not yet formally dealt with the Commission proposal; hence definite clarity on the future of the banking secrecy in Austria and Luxembourg does not yet exist.
In spite of broad agreement in the European Parliament, the key question will keep us in suspense: Will the automatic exchange of information be implemented and if yes, what form will it take?
Further information:
Draft proposal of the Commission
Draft report of George Sabin Cutaş (S&D)
In early summer 2013, the European Commission, under the auspices of Algirdas Šemeta, published a proposal for a Directive as regards mandatory automatic exchange of information in the field of taxation. This legislative act shall add key elements to an already existing Directive. The intention is to make the new mechanism, which will also cover information on dividends, capital gains and other financial incomes and account balances, mandatory for all Member States from 2015. The previous Directive 2011/16 only included five categories on income and capital, which have to be taken into account regards exchange of information: employment, life insurances, pensions, director´s fees and ownership of resp. income from immovable property.
The aim of this reform is the creation of more transparency in tax-related issues at European level. The objective of an automatic exchange of information is to ensure that national tax authorities cooperate to improve their own standard of knowledge to enable them to tackle tax fraud and tax avoidance more effectively.
Hence, this Directive is within the context of other initiatives on combating tax fraud, tax evasion and tax avoidance. These issues were recently discussed at the G20 summit in St. Petersburg, where consensus with regard to the necessity of a global automatic exchange of information has been reached. In addition, the US has concluded the so-called “Foreign Account Tax Compliance Act” (FATCA) with the EU Member States.
Draft report in the European Parliament
The Committee on Economic and Monetary Affairs (ECON) of the European Parliament discussed this draft proposal by the Commission on 24.09.2013. To begin with, rapporteur George Sabin Cutaş outlined his opinion. He largely agreed with the ideas of the Commission; however, added three important issues.
First, a sanction mechanism for national states not complying with the regulations had to be included. However, Cutaş failed to provide a more precise concept as to what possible sanctions should exactly look like. None of the MEPs contributing to the following debate in the Committee addressed this subject.
Cutaş also requested to explicitly consider the EU’s data protection regulations in the proposal of the Commission. Other parliamentarians supported this request, in particular in view of the current revelations concerning the activities of NSA and other European Secret Services.
The third proposal by Cutaş, which was readily accepted by all other members of the Committee on Economic and Monetary Affairs (ECON), concerned agreements with third countries. A respective mandate should be given to the Commission, enabling it, similar to trade issues, to hold negotiations with third countries in respect of an automatic exchange of information on its own. This is based on the central idea of the benefit, a strong single approach of the European Union would bring. Unified agreements with third countries, which have been negotiated by the Commission, would mean transparent framework conditions for all Member States.
Cutaş pointed out that the exchange of information between the US and the EU Member States in matters of taxation based on the “Foreign Account Tax Compliance Act” (FATCA) would cause an imbalance. There would be more transatlantic transparency in the field of taxation than within the EU itself. The new Directive would have to address and change this as quickly as possible. Apart from that, leading negotiations by the Commission in this matter had provided a better, more uniform result.
Debate in the Committee
All factions of the European Parliament largely welcomed the proposal of the Commission and the draft report of George Sabin Cutaş. Great willingness was signalled in general to ensure that this Directive could be adopted by Parliament as quickly as possible.
There were only slight points of friction regarding the relationship between the EU and the US, which Cutaş had mentioned. Representatives of the European People’s Party (EPP) and the Liberals (ALDE) voiced doubts whether any orientation towards the US, in view of the current NSA spying scandals, would be really such a good idea. Apart from that, the European Parliament had to be careful with regard to tax-related issues not to give the impression it had the intention to mutualize national competencies. Both aspects could harm the image of a certainly necessary reform and would make gaining the support of the population for this Directive significantly more difficult.
Conclusion & Perspective
What is noticeable concerning the issue of automatic exchange of information in the field of taxation is the fact that there is broad consensus through all factions of the European Parliament is on principle. This mechanism is regarded as a useful and necessary means in the fight against tax fraud, tax evasion and tax avoidance. However, there are still some technical questions to be clarified. The first reading of the Directive proposal of the Commission will take place on 4 November 2013 in the Committee on Economic and Monetary Affairs (ECON) of the European Parliament. It is unlikely that MEPs will vote against this proposal of the Commission. However, one has to see how the Council of the European Union will decide in this matter.
Here, the debate could be somewhat more heated. After all, such an exchange of information might weaken the banking secrecy in Austria and Luxembourg in its current form. When finally Luxembourg relented, Vienna too has softened its position and agreed to abolition for foreigners within the scope of the automatic exchange of information. However, bank details of Austrians would not be made available to other EU countries. Nevertheless the Council has not yet formally dealt with the Commission proposal; hence definite clarity on the future of the banking secrecy in Austria and Luxembourg does not yet exist.
In spite of broad agreement in the European Parliament, the key question will keep us in suspense: Will the automatic exchange of information be implemented and if yes, what form will it take?
Further information:
Draft proposal of the Commission
Draft report of George Sabin Cutaş (S&D)