Wednesday, April 17, 2013

Automatic Information Exchange: is Austria conceding on bank secrecy?

It does look that way. Yesterday we took a look at Austria's hardline position on banking secrecy which had seen Finance Minister Maria Fekter fighting furiously with her counterparts at an Ecofin (European Finance Ministers') meeting on April 12-14. The Europeans wanted transparency, and she didn't.

We did, however, ask whether the outlines of a compromise were already apparent: Austria could keep banking secrecy with its own residents, while allowing cross-border transparency.

It now seems that this is already the official Austrian position. From Tax News:
"Austrian Chancellor Werner Faymann has recently confirmed the Government's "clear position" on banking secrecy, insisting that Austria is willing to enter into negotiations with the European Union (EU) on the automatic exchange of bank deposit information. Chancellor Faymann made clear however that banking secrecy is to remain firmly in place and "untouched" for Austrians."
That seems pretty clear. The compromise we pointed to seems to have been accepted. We believe - though we haven't seen any official confirmation of this - that this would work for the EU, and would unblock the gigantic political logjam that for months and years has prevented progress on plugging the loopholes in the European Savings Tax Directive, via powerful Amendments to the Directive that are waiting in the wings.

There are a couple of provisos in the story, however.
"The Austrian Chancellor conceded that the details of such plans have yet to be negotiated with the EU, alluding to the fact that there are various models that could be applied. These include information exchange on a case-by-case basis and an automatic exchange of bank information, Faymann noted, underscoring that Austria favors "the most sensible solution."
That weakens the commitment somewhat - but we know that the EU will no longer stand for the almost-useless case-by-case approach to exchanging information, where you have to know the information you are looking for before you ask a tax haven about it.

The Tax News story appears to be clearer than an earlier Bloomberg story, which said Faymann and Vice Chancellor Michael Spindelegger
"said they want to retain the system of a withholding tax on interest and protect confidentiality rules for residents, while working with other nations against tax cheats."
This would be compatible with a settlement whereby Austrians pay a withholding tax on their bank deposits, while exchanging information automatically.

The slightly confusing thing about all this is that Faymann's position has been clear on this for quite some time - before the Ecofin meeting - so, given that this position should be acceptable to the EU Finance Ministers, one might ask why there was such a big fight there.

The answer to this question lies in the internal divisions inside Austria's coalition government, with Faymann on one side and Fekter on the other. And this is confirmed by an interview given by Fekter to Austrian TV yesterday where she said:
"There's no gap between me an chancellor Faymann...  Withholding tax is a more efficient system; we want to keep it. It delivers money - as the agreements with Switzerland and Liechtenstein do (!) - whereas Automatic Information Exchange (AIE) delivers only information (!) ...  Luxemburg is only shifting to AIE because of the power of the USA. We will make a diffierent (FATCA) agreement with the US and therefore won't have to concede AIE to the EU."
Fighting words - and nonsense, of course, that transparency won't deliver tax revenues, and that the Swiss and Liechtenstein deals Austria as signed are worth much more than the paper they're printed on.

So the Tax-News story isn't yet the definitive position. David Walch of Attac-Austria puts an interesting interpretation on all this, in an email to TJN:
"In my opinion all this has much to do with the upcoming elections in Autumn. For me it looks as if this is a trap for Chancellor Faymann from the Social Democrats. HE hast to attend the next EU-Council in May. So HE and not Fekter will come back and have to declare why Austria gave up banking secrecy."
Which seems like a shrewd way of looking at this: it makes complete sense.

Most importantly, though what this analysis tells us (if accurate) is that Austria's going to give in on its B.S. (Bank Secrecy) before too long. And the pressure continues to mount:
"Austria doesn't want us to touch its banking secrecy [rules]," [Prime Minister Jean-Marc] Ayrault said in an interview with French radio station France Inter. "Austria won't be able to hold this position, it is a friendly country, I know its chancellor and I have told him."
Still, to coin a mangled avian metaphor: until the Austrian Ostritch sings (or goes quiet) we won't be counting our . . . chickens.

Endnote: The FT has a story about Austria signing hopelessly loophole-riddled deals with Switzerland and Liechtenstein, whose praises Fekter has been loudly singing (not so long after she was bizarrely insisting on inserting more loopholes into.) We're glad to see the FT noting:
"Critics question the deals’ effectiveness, arguing that they contain serious loopholes, such as the Swiss agreement’s failure to deal with discretionary trusts and the lack of adequate oversight."
We sure do. The FT also, however, quoted someone who clearly didn't know what he was talking about:
"Defenders of the treaties say levels of evasion will be small. “I don’t think people are very likely to use the time to try and get around the deals,” says Bernhard Gröhs, partner at Deloitte Austria’s tax litigation practice.

“To do so, Austrians would have to move their money somewhere very far away, which is less convenient than having it in a neighbouring country. And banks in Switzerland have become wary about simply transferring money to Austria, with no questions asked, before the deadline.”
We wonder if Mr. Gröhs has studied the arrangments in any detail at all. Is he not aware of the many opportunities to escape it, not by moving your money anywhere, but by using entities and arrangements (such as, er, Liechtenstein foundations) to hold those assets, which fall outside the scope of the agreement?

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