Automatic Information Exchange or Banker’s Pet Scheme: Europe Remains Undecided

September 14th, 2011

In Germany, the Social Democratic Party (SPD) has come out against the deal. Meanwhile, the European Commission has also said it will have to assess the legality of the deals but has not taken a firm position. The final withholding tax concept, known as ‘Rubik,’ was initially formulated by the Association of Foreign Banks in Switzerland (AFBS) and by Swiss banks to protect banking secrecy against the international moves towards automatic tax information exchange, which followed the global financial crisis.

SPD Plans to Block Rubik Ratification in Germany

The SPD’s financial concept note published last Monday rejects the agreement with Switzerland. It is now quite likely that the deal will be rejected by the Upper Chamber, the Bundestat. North Rhine Westphalia’s Finance Minister Walter Borjans argued that effectively giving an amnesty to tax evaders was unconstitutional. Nicolotte Kressl and  SPD finance experts in the Bundestag said the deal should be halted as not to undermine EU efforts to secure automatic exchange of information with Switzerland.

EU to Look into Legality of the Deals

The European Commission is analyzing whether the final withholding tax deals are compatible with EU law. “We had many contacts with Germany and Great Britain, which assured us that their bilateral agreements would not infringe the European directive on savings taxation or the Union’s agreement with Switzerland. We’re going to check all that. It is clear that in the light of international law, the directive and the EU-Switzerland agreement take precedence over the bilateral agreements initialed in August,” EU Taxation Commissioner Algirdas Semeta said to reporters on 8 September. The European Council Working Party on Direct Taxation will meet on 22 September and the commission has requested that Germany and Britain present the full text of their agreements with Switzerland at this meeting.  However, it does not seem that the commission opposes the deals but rather that it might use them to win some small further concessions from Switzerland, either expanding the scope of information exchange on request or bringing in other types of investment.

Luxembourg and Austria did not want to take part in automatic exchange of information as part of the European Savings Tax Directive (EUSTD), so they won an opt-out allowing them to temporarily use a withholding tax method instead. Now Luxembourg is arguing for an extension of this arrangement in the light of the Rubik deals. The EC maintains that the original timetable must be adhered to.

If it wasn’t enough that Swiss banks have already begun to advise UK citizens to move their money to Singapore to avoid the withholding tax. There was another instance of the toothless or complicit approach of the UK authorities to tax dodging. Boilerplate concerns from business about ‘uncertainty’ were enough for the government to drop an evaluation of the UK’s double taxation treaties investigating the opportunities for tax avoidance these agreements often create. Accountants Ernst and Young cheered this saying “The Coalition pledged to take a more consultative approach to tax policy making and, from this volte face, they seem to be living up to their mantra,” i.e hastening regulatory capture and allowing companies to dictate tax policy appears to be an  official British policy.

France entered discussions with Switzerland on Rubik and rejected it for now. Some French officials reasserted their commitment to promote automatic information exchange, however other officials have hinted that the Swiss proposal might receive consideration at some point in the future. In Addition, Alfredo Gysi, head of the Association of Foreign Banks in Switzerland, one of the architects of the final witholding tax proposal, is clearly looking to tempt Italy into a similar deal. On top of vast amounts of flight capital from developing countries, it is estimated that, in total, European citizens hold roughly 700 billion Euros in Switzerland, it can be assumed much of this was never properly taxed.

Written by Alex Marriage

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