Very shortly we are going to publish a new study
into the experiences made with automatic information exchange. International Tax Review
has reported today about the key findings and with permission we reproduce the full Q&A below:
Salman Shaheen, ITR
International Tax Review: What has your study told you about how AIE is already operating in various jurisdictions?
Markus Meinzer: For our study
we reviewed the experiences with AIE of 12 countries and also analysed
research by the EU-Commission into the functioning of the European
Savings Tax Directive (EUSTD).
study confirms some of OECD’s findings from June 2012 that AIE is now
common practice not only among, but also beyond OECD nations. We looked
at 12 countries and found that only one, Austria, does not participate
in AIE on bank interest. Every other reviewed European countries plus
the US and Australia engage in AIE on bank interest, and Argentina at
least collects all the relevant information for transmission of this
data, and is likely to send AIE records, too.
countries are champions of AIE. They use this data to prefill tax
returns and thus save their citizens valuable time on filing. Denmark
excels as a champion of AIE, not only for the number of countries it
exchanges data on capital income with (69), but also for the quality of
data it is sending. For interest payments, it was the only country
reviewed which was found to always collect beneficial owner information
for non-resident investors, and sends this information in all of their
evaluation and analysis by the European Commission into the functioning
of the EUSTD suggests that compliance issues arise with British
Overseas Territories and UK Crown Dependencies as well as with
Switzerland. More importantly, the Commission found extraordinary and
unexplained low ratios of interest payments being reported by the UK.
question about the supervision and sanction regime in place to ensure
compliance with reporting obligations has been largely ignored by the
international community. There is no public and comparative information
available on what happens if banks fail to properly comply with routine
reporting obligations, either as required by law or in statistical terms
as empirically observed. The latter information appears not even to be
available in meaningful breakdowns in the national context. The EUSTD
does not prescribe any sanction mechanism for failure to report even if
economic operators acted in bad faith, and the proposal for amending the
EUSTD still fails to amend this omission.
a result, banks are negligent in complying with the EUSTD: for example
in Germany where the maximum fine for a failure to properly report EUSTD
payments is €5000 even for willful misreporting. A recent study
by an economics professor underlines the relevance of criminal
sanctions for bankers who fail to comply with reporting and other
ITR: What systems are most effective? Is AIE more effective when there is a multilateral system in place such as under EUSTD?
It is of overwhelming importance to have a clear and strict common
protocol for data exchange, and the only existing and working protocol
today that to some extent fits this requirement is a multilateral
protocol, the EUSTD. It seems that the political cost to create enough
clarity through a strict protocol is only assumed if this effort is
embedded in a multilateral process. Furthermore, when an agreement is
merely bilateral, legal structures involving third countries can easily
be deployed to hide the true recipients of payments.
it would be wrong to portray the EUSTD as being the best possible
solution. The existing loopholes are widely known, and though effective
remedies have been on the table since 2008, these have been consistently
blocked by vetoes of Austria and Luxembourg, aided by UK and German
bilateral Swiss deals which were designed to undermine EU positions.
ITR: What do you think would be the most effective way to move forward with AIE on a global level?
There is no single quick fix, so we need to remain flexible and
pragmatic. Three possible multilateral platforms and processes are
underway. The first is the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters.
However, this platform only allows, but does not require, its members
to engage in AIE. There is also no indication that this Convention is
used for AIE, nor that it would develop multilateral structures for AIE.
Rather, it seems to rely on optional, additional bilateral agreements
to implement AIE. As such, it is vulnerable to being undermined by
structures stretching across multiple jurisdictions. Furthermore,
transparency and governance questions about the Convention remain unaddressed.
second and third existing initiatives are the EUSTD and the efforts to
multilateralise FATCA. Technically and politically speaking, both have
strengths and weaknesses. As a matter of principle and good practice it
is important to involve emerging economies such as India and Argentina,
to find out whether they are happy to proceed on the basis of either of
these two mechanisms, or whether we need a political process at the UN
instead. Also, it is important to draw the right lessons from the recent
banking scandals. It must be acknowledged that banks need strict
frameworks for operating, including for operating financial accounts.
Whichever multilateral system is tougher in ensuring that all accounts
opened at a bank are actually covered by reporting obligations should be
given preference, subject to the involvement of developing countries.
the opportunities for making progress appear promising, the location of
FATCA efforts at the OECD’s Committee of Fiscal Affairs risks creating
an unacceptably slow political process, as their record on AIE and
creating international protocols on taxpayer identification numbers,
indicates. The outspoken and implacable opponents of AIE are members of
the OECD’s Committee (Austria, Luxembourg and Switzerland) and are
therefore well placed to play a fatal delaying role. The OECD also lacks
proper representation of developing country interests, yet OECD countries continue to block
attempts to give the UN Tax Committee a more prominent role in
formulating measures for strengthening international tax cooperation.
ITR: What are the main obstacles to AIE?
It is sad but unavoidable that this question can only be answered by
naming names. There is no doubt that Austria, Luxembourg and Switzerland
act as an unholy trinity, with support from other countries like
Germany. The means through which these countries have colluded to delay
or derail AIE involve the bilateral deals proposed initially by the
Swiss Bankers’ Association, and later by the Swiss State Secretary for
International Financial Matters, headed by Michael Ambühl. As our
analysis has shown, these bilateral treaties are riddled with subtle,
but powerful loopholes
and were launched as a means to divide the EU to delay and derail the
far better EUSTD amendments. It is similar to siblings who quarrel about
getting a soft drink in a restaurant: if the other gets one, I also
want one. These bilateral deals have given Austria and Luxembourg a
convenient pretext for vetoing progress on the EUSTD, arguing that they
want an anonymous withholding tax instead of AIE to avoid conceding an
unfair advantage to Swiss banks.
addition, there seems to be a sentiment among those German-speaking
bank secrecy havens that they have been duped by Anglo-Saxon secrecy
jurisdictions through the G20 crackdown on banking secrecy since 2008,
because the main change allegedly came at their cost, by removing their
reservations on Article 26 on the exchange of banking information. While
there may be a kernel of truth in this statement, in so far as there
has not been a strong determination and little success in requiring the
public registration of trusts and limited liability companies, and to
exchange this information automatically, it appears rather hypocritical
since the envisaged EUSTD amendments, for instance, would require the
creation of such trust registries and therefore would address their
Why are these nations
then vetoing progress on the EUSTD and devising a strategy to derail
the EUSTD through the bilateral Swiss deals? It is inconsistent, and
sadly shows the determination of Austria and Luxembourg to preserve
their secrecy industry.
The full study will be available here