EU Savings Tax Directive to be repealed? - Financial Transparency Coalition

This article originally appeared on the blog of the Tax Justice Network, a Coordinating Committee member of the FTC.

The EU Savings Tax Directive (EUSTD) has been the EU’s flagship transparency initiative since its introduction in 2003, and we have written about it on many occasions. It complements another EU transparency scheme called the Directive on Administrative Co-operation, which was beefed up this week, as the Wall St. Journal reported:

“European Union finance ministers agreed Tuesday on a far-reaching crackdown on tax evasion that will bring the bloc’s standards on par with global rules by 2017, although Austria is getting an extra year to build up a data-exchange system with its banks.”

The DAC currently covers only EU Member states, while the EUSTD is extended by agreement to cover also a range of third countries in the EU’s orbit, including Switzerland and a bunch of British (and Dutch) tax havens. Both are systems of automatic information exchange (AIE), the new global financial transparency standard which TJN has been fighting for for years but only came into vogue in the past couple of years. The DAC was being beefed up to accommodate the new global Common Reporting Standards (CRS) led by the OECD. The CRS is another AIE system, which we have described as a vast improvement on a bad situation – but it still has various holes.

Just a few days ago, the message was that the DAC and the EUSTD would continue complement each other. French Finance Minister Pierre Moscovici said at the press conference announcing the DAC’s extension this week (see about 3.00 minutes in on the video)

“Our objective is clearly to have a general principle of automatic exchange of information within the EU, without exception. The DAC in field of taxation already gives us a legal basis, but we should also move forward and settle the negotiation of the Savings Tax Directive as well as its extension to third countries.”

The idea had been that the DAC would incorporate the OECD’s CRS as its technical standards, while leaving the EUSTD to plug the gaps where the CRS has loopholes. But now, from an FAQ published by the European Commission:

“Q: Is the Savings Directive still relevant, given the new, full-scope automatic exchange now agreed by Member States?

A: The revised Administrative Cooperation Directive, agreed by Ministers yesterday, covers a wide scope of income and capital – including most of what is covered by the revised Savings Directive. Therefore, in order to have just one standard of automatic exchange and to avoid legislative overlaps, the Commission will now consider the repeal of the Savings Directive. Coordination of the likely repeal of the Savings Directive with the introduction of the revised Directive on Administrative Cooperation will ensure that we do not create or leave any loopholes for tax evaders. The Administrative Cooperation Directive is comprehensive and largely covers all areas that had previously been covered by the Savings Directive.”

If this happens then the DAC, we understand, is likely to adopt the role of the old EUSTD, as regards extending transparency to the third countries.

So it seems that things are in flux, and there may be some disagreements going on in there.

To be clear: the DAC covers a number of categories of income that aren’t covered, or aren’t adequately covered, by the OECD, so it adds value.

For the record, as regards another transparency scheme, the U.S. Foreign Account Tax Compliance Act (FATCA,) Moscovici added:

“we hope we [will] move forwards to agreement with third countries for full automatic information exchange with the EU, while in parallel we will be implementing the agreements that we just signed with the United States of America”

This statement by Moscovici raises question about the EU’s willingness to treat the US as another ‘third country’ to which to extend the information exchange system: we have in the past pointed fingers at Swiss chicanery by trying to wriggle out of this via various schemes such as cherry-picking countries to exchange information with. But we worry that the United States is, while hungry for other countries to provide it with data, much more reluctant to provide reciprocal data to other countries, raising the spectre of a large, rather monopolistic and still secretive offshore monster emerging on that side of the Atlantic.