EU Takes Step Forward in Fighting Tax Evasion

December 8, 2010 International Tax CooperationOffshore BankingTaxation in EU

M. Jerzy Buzek, the new elected President of the European Parliament, during his first speech as president in Strasbourg, Tuesday 14 July 2009The Finance Ministers of European Union countries have agreed to a set of new rules regarding the exchange of tax information, banning the use of bank secrecy as a reason to refuse cooperation.

On December 7th European Union (EU) member nations made another step in the fight against tax evasion, when EU Finance Ministers signed a new directive which will greatly raise a countries’ powers to conduct international tax evasion investigations. The new agreement prohibits tax authorities in all EU states from using bank secrecy as a reason to refuse cross-border cooperation in matters of tax collection and suspected tax evasion, and sets out a common set of procedures for requesting information on taxpayers.

Currently the new directive explicitly allows request for information regarding tax payers’ “income from employment, directors’ fees, dividends, capital gains, royalties, certain life insurance products, pensions, and ownership of and income from immovable property.” However, the new rules specifically ban “fishing expeditions”, whereby all information requests by tax authorities must be made regarding a specific taxpayer, with strong suspicion and some evidence of illicit activity. The rules will be applicable from January 1st 2011, and will not be retroactive. The European Commission is scheduled to release a report regarding the effectiveness of the arrangement by 2017, potentially allowing the possibility of an expansion to the new rules.

Belgian Finance Minister Didier Reynders, who chaired the meeting, explained the benefits of the new agreement, saying that the directive will bring the EU-member states into line with the tax transparency and information sharing rules previously laid out by the Organization of Economic Cooperation and Development (OECD). Additionally, it will greatly aid countries’ efforts in raising their tax revenue levels and subsequently closing any budget deficits.

European commissioner for taxation Algirdas Semeta commented on the new directive saying that it has several benefits over EU-nations creating independent bi-lateral agreements. He claimed that the rules will send “…a strong signal to the world that the EU is serious about the fight against tax fraud and evasion.” While discussing further benefits he added, “In particular, it sets up common mechanisms and rules of procedure for the exchange of information, which will improve transparency.”

Photo by European Parliament