Another note of caution on the Euro-Fatcas

Updated, April 16, with new quotes.
We have long argued that the European Savings Tax Directive (EUSTD), a mechanism for automatic inter-governmental information exchange that encompasses 43 jurisdictions including a number of tax havens, is a crucially important step forwards in the fight against financial secrecy. We have also been rather supportive of a U.S. initiative known of Fatca, which is another form of automatic information exchange which recruits financial institutions to be the transmitters of the relevant financial information.

The Savings Tax Directive is at a crucial stage: currently full of loopholes, it now looks as if a political logjam has been broken that will allow powerful amendments to move forwards into law, which would plug its biggest loopholes and start raising some serious revenues for the first time. A few days ago, however, we saw five countries promising to start a multilateral pilot programme for Fatca and to make it the new global standard.

Now, from Businessweek, there is more:

"Finance ministers from Germany, France, the U.K., Italy, Spain and Poland held a joint press conference today in Dublin calling for the 27-nation bloc to adopt the FATCA information exchange program."

Is this a good thing? We are not sure. If this seriously disrupts progress on finally enacting the long-awaited EU Savings Tax Amendments, that would be an extremely high price to pay.

We are still getting our heads around how these two rather different models - the EUSTD and FATCA - might mesh, or coexist, or clash with each other. (Has anybody got their heads around this?) EU Tax Commissioner Algirdas Semeta, who has done some very good work on these issues, urged a note of caution:

"Semeta has urged countries to press ahead with current proposals to clamp down on tax evasion rather than switch to new proposals. He maintains that an updated EU savings tax accord, which has been on hold because of objections from Luxembourg and Austria, would bring together 27 countries rather than the handful which have signed on to the new initiative so far."

Our emphasis added. Semeta is always worth listening to. (We assume that the writer made a mistake: there are 43 participating members in the EU Savings Tax Directive, a rise from 42 in October 2010 when the Netherlands Antilles split.)

And here, in an interview with Der Spiegel:

"SPIEGEL: The European Savings Tax Directive, which is meant to regulate the taxation of savings across the EU, leaves many loopholes for tax evaders.

Semeta: The savings directive has many merits, but it is true that we identified important loopholes which were being exploited by tax evaders. Already in 2008, the Commission set about trying to close these loopholes and strengthen the EU rules. But, up until now, member states have not managed to agree on a revised directive, because Austria and Luxembourg have blocked efforts. Now that Luxembourg has changed its stance on bank secrecy, and with Austria hopefully soon to follow suit, I hope we will see the fast adoption of a stronger savings directive.

SPIEGEL: But dividends and other investment income are excluded from the exchange of information?

Semeta: The new rules that entered into force this year foresee a gradual but significant expansion of the automatic exchange of information. Starting in 2014, it will apply to labor income, pensions, director's fees, life insurance and revenue from property. The next step is to extend the information exchange to dividends, royalties and capital gains. But maybe now with the current appetite to move quicker and harder against tax evasion, the member states will seek to speed up the wider application of automatic exchange foreseen in our legislation."

It looks like a logjam on this crucial piece of legislation is now breaking. Let's not lose sight of it.