EU Push For Savings-Tax Deal Fought By Luxembourg, Austria

The European Union’s push to strengthen its fight against tax evasion with an extended savings accord by the end of this year may founder on opposition from Austria and Luxembourg.

Luxembourg Finance Minister Luc Frieden said he was “most surprised” that the savings-tax proposal came up for discussion at a meeting of EU finance chiefs in Brussels today. No decisions can be taken on extending the scope of the bloc’s existing law until the European Commission, the EU’s executive arm, has completed talks on the issue with Switzerland, Liechtenstein, Andorra, San Marino and Monaco, he said.

The lack of a “level playing field” between the EU and those countries risks money moving out of the 28-nation bloc, Frieden said.

“It’s extremely important that the commission becomes more energetic in those discussions, because we don’t think that” a decision should be taken before then, he said. Acting Austrian Finance Minister Maria Fekter today backed the Luxembourg position that they won’t budge until the results of the talks with the other countries are over.

EU Tax Commissioner Algirdas Semeta told finance ministers during a public debate today that “it’s a must” to agree on the draft law by the end of the year and that Luxembourg and Austria “please not condition the adoption” of the law on the regulator’s discussions with the five countries.

“The world is already moving and the EU must not be left behind,” he said.

Any decision in the EU should also consider the global situation “and then I think we will reach a result in the coming months, ” Frieden told his colleagues in the meeting in Brussels.

Closing Loopholes

The proposed agreement aims to set standards for how countries can collect information on income that their residents earn from savings held in other nations. The updated accord plans to close loopholes in the previous pact by including savings income from trusts, foundations, funds and other financial products. It will also require all EU nations to take part in information exchanges after a transition period.

Under the original 2005 accord, Austria and Luxembourg were exempt from automatic information-exchange requirements, and were instead allowed to withhold tax on interest income paid to depositors from other EU states while protecting their identities. Other EU states transfer the income data to the depositor’s home tax authority.

“We gave the mandate for negotiations, but the agreements with the five third countries are a pre-condition for the adoption of the revised directive,” said Fekter.

Other ministers today didn’t agree. Spanish Economy Minister Luis de Guindos said he “cannot accept” arguments by the two countries’ to wait for the end of negotiations with neighboring countries. He said such arguments are “a sort of alibi” that have been “paralyzing” ministers for a long time.

French Finance Minister Pierre Moscovici said the law’s adoption “can’t be put off again” and that if agreement is not possible before the end of the year, finance ministers should hand over to heads of state meeting next month. German Finance Minister Wolfgang Schaeuble said Europe risks looking “a bit ridiculous” if it doesn’t move on this now.

Luxembourg “will not reverse its decision” earlier this year to ease its bank-secrecy rules and apply the automatic exchange of tax data from 2015, said Frieden.

“But to apply it to other sources of income, we need first to have the negotiations with the third-party countries,” he said

Commission Court

“The ball is clearly in the commission’s court,” he said. Knowing more about the situation in these countries “is important, because otherwise the EU would apply rules of taxation to certain products whereas the same products would not be taxed either with a withholding tax or with a system of automatic exchange of information.”

Luxembourg is expected to get a new government by December, without Frieden’s Christian Social People’s party, following national elections last month. Its long-term coalition partner, the Socialists, are in negotiations with the Liberals and Greens to form a new government.

Frieden said the new government’s position is unlikely to change on this point “given that it’s in line with the position successive Luxembourg governments have had.”

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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