Wednesday, May 14, 2008

The European Savings Tax directive

For those who read French, please take a look at this blog by Christian Chavagneux, who is writing about a meeting today of European Finance Ministers to discuss strengthening the EU Savings Tax Directive, which aims to tackle tax evasion in Europe and enhance the EU's internal market. It is a vitally important tool, but it contains loopholes: see our recent briefing paper for a straightforward description of the Directive and its flaws.

As we have already remarked, Europe probably leads the world in terms of thinking of ways to deal with the threats from tax havens, and the political mood is in place for healthy reforms to tackle tax evasion. As Chavagneux notes, the French and German finance ministers want information to be exchanged automatically between countries and, crucially, that the directive should be extended so that it does not only cover individuals' bank savings, but also covers legal entities such as trusts, as well as sophisticated instruments such as derivatives, insurance, and other innovative financial tools. The EU Savings Tax directive has been far less successful than its originators hoped, because wealthy individuals have been adept at exploiting these kinds of glaring loopholes - which are there as a result of behind the scenes lobbying by vested interest from Britain, Luxembourg, and other places with a vested interest in promoting international corruption.

On May 9th the EU Commission presented a document preparing for the meeting which, as Chavagneux notes, mixes sensible proposals with others, which appear to reflect "a will not to annoy the financiers too much" and added this:

"While the Commission presents the notion of extending (the directive's coverage) from merely individuals and towards all legal entities (foundations, trusts, etc.), its analysis, page after page, finally limits the field of those to whom it would apply to entities registered . . . . outside the European Union! Nothing inside the Union (trusts registered in London, in Luxembourg, etc.)! Switzerland, Liechtenstein and the other Anglo-Norman islands (Jersey, Guernsey etc.) will only have to present this evidence of discrimination in order to refuse it en masse."

Read Chavagneux' article: there is more. Richard Murphy has also covered this in detail on his blog. Regarding the selective extension of the EU STD only to outsiders, he says:

"There is considerable risk in this: the concept of the level playing field is important, and the need to prevent market distortion is noted throughout the document. To create an obligation on non-EU locations covered by the STD not imposed on EU members would be dangerous and might induce the withdrawal of these locations from the scheme altogether. That would not be beneficial."


Murphy also makes some strong proposals for change, which are well worth reading.

Chavagneux ends:

"There is surely a window of opportunity in Europe to go further in the fight against tax havens. In terms of principles, it is a question of equality of treatment of rich and the less well off. On a political level, we are talking about 40 to 50 billion Euros of lost tax revenues for France, more than its budget deficit."

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