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Tax Evasion In The European Union

It is generally a good idea to listen to what Danish PM Helle Thorning-Schmidt says about the political side in the European Union. Not because she represents a large and powerful economy – which she doesn’t; but because she has spent all her political life in those circles and is well versed in different languages. She knows the European Union inside and out – and can say things representatives of the major countries can’t.

Now for a run down of the Danish press:

Jyllands-Posten: Uventet fremskridt i EU’s skattejagt

POLITIKEN.DK Fakta om skatteaftaler – på vej til en ny verdensorden?

Handelsblatt: EU kippt Bankgeheimnis

The facts:

The European Union

  • The old directive: The European Union-countries decided an interest taxation directive 10 years ago, demanding automatic exchange about the European Union-citizens accounts in other member states. It only applies to the private citizens accounts. Both Luxembourg and Austria got exceptions allowing them to source tax deposits and transfer the money to the country of origin instead of giving information.
  • The new directive: In 2008 the European Union-commission proposed a revised interest taxation directive, demanding automatic transfer of many more types of information about deposits of f.i. investment funds, pension funds and other ”innovative financial instruments”. The proposal passed the European Union-Parliament in April 2009, but has ever since been blocked by Luxembourg and Austria.
  • Plan of action: The Commission forwarded in December 2012 is an ambitious catalog of ideas for even greater cooperation in fight against tax fraud. The plan contains a number of suggestions among others a common blacklisting of non-cooperative countries as far as exchange of information is concerned.

USA and Europe

  • FATCA: The US Congress passed in 2010 tough new tax legislation concerning US accounts abroad Foreign Account Tax Compliance Act (FATCA). The law demands that all financial institutions in other countries deliver extensive information to the Internal Revenue Service. Non-complying will not be allowed to operate in the USA any more. This made Denmark and many other EU-countries make FATCA-agreements with the USA.
  • The European pilot project: After signing FATCA-agreements with the USA the five largest European Union-countries decided in April to mutually exchange the same type of information among them. This pilot project has yet to be hammered out, but is expected to need still more banking information exchanged – for example about companies accounts – than even the revised interest taxation directive allows for. Since then a number of other EU-countries have joined voluntarily. Last week Denmark, Sweden and Finland joined so the pilot project now has 17 member states.


  • G8: On June 17- 18 British PM David Cameron hosts a summit between the leaders of the world’s leading industrialised countries. He hopes for a broader agreement on the fight against tax evasion. Among others the US President Barack Obama and Russia’s president Vladimir Putin participates in the summit in Lough Erne in Northern Ireland.
  • G20. The European Union and US is that the next summit for the world’s largest nations will create the breakthrough for a global tax agreement. Putin hosts the G20-summit in Sct. Petersburg 5-6 September, where also the leaders of China, India, Brazil, Argentina, Mexico and South Africa participate.

The order of last week to the finance ministers was to ”begin negotiations as quickly as possible” with third-countries (Switzerland, Andorra, Liechtenstein, Monaco and San Marino). The purpose is to ensure these states continue to work with measures that are “of equal worth” to those in the European Union.


Helle Thorning-Schmidt, Danish PM:

European Union-countries states and government leaders has Wednesday on their summit in Brussels agreed upon coming to an agreement on new rules that will make it harder to hide taxable funds in other EU-countries than those where the tax is due.

PM Helle Thorning-Schmidt (S) is happy that the summit came “further, than I had dared hope”.

” We have laid a clear trail for the continued work. I hadn’t banked on we would get this far.” says Thorning.

The PM found her optimism on that even the traditional tax shelters Luxembourg and Austria have agreed to at text saying the aim is an updating of the existing interest rate tax directive before the end of the year.

It is not a firm condition that the same agreement should be entered into with countries like Switzerland and Liechtenstein, something Austria and Luxembourg formerly insisted upon.

Thorning states that the two countries are still ”being recalcitrant”. But she also says that she is ”cautiously optimistic in relation to eventual success having and automatic exchange of information.”

Angela Merkel, German Bundeskanzlerin:

 (CDU) spoke of a ”very important step forward.” The European Union gives ”a clear signal against tax fraud and today also the still legal principles of tax evasion.”

As hesitant nations like Austria and Luxembourg agrees to the complete exchange of data, the European Union is now prepared to negotiate with third countries like Switzerland.

Merkel hinted that the European Union could act differently. On a journalists question why the European Union doesn’t act towards Bern like the USA and simply proceed with legislation she said: ”We’ll first try negotiation.” The example of Switzerland and the USA remain an option and if negotiations don’t reach the target, then it would be attempted to ”exhaust all possibilities.”

One of the elements of the action plan to be presented to the European Union-Commission in December would be actions against ”aggressive tax planning” of international companies that shifts their profits with artificial devices to particularly tax friendly states.

François Hollande, French President:

Emphasised: ”We cannot accept that European or non-European companies avoid tax with today legal methods.”

Jean-Claude Juncker, Luxembourg PM:

Spoke Wednesday to the necessity to take Switzerland seriously and negotiate with her.


The correspondent Michael Laczynski from the Austrian paper Die Presse remarks aptly:

When Merkel beforehand spoke of “a giant step forward” it might mean either a far reaching plan or that everything has been agreed upon in advance. Apparently this time it is both.

Especially as Merkel is usually soft spoken and cautious, but she certainly this time swings the bat for a home run.

So much so, that it surprised Helle Thorning-Schmidt. This could mean something has fallen into place without any direct bearing on anything north of the Alps.

The surprise might be due to the report in Politiken that Denmark, Sweden and Finland last week joined the pilot project. The common denominator I think of in this context is Nordea which is the second largest bank in Denmark and Sweden. The story hails back to the autumn last year with the major crisis in SAS where Nordea tried to blackmail Norway, Sweden and Denmark to up the equity ante or Nordea would not prolong the credit line.

Since then there has been some manoeuvrings behind the scene with the refinancing of the variable interest real estate bonds ending in a surprising low interest rate. Latest was the “technical problems” of on-line banking last Thursday, where Nordea customers could not access their accounts.

This speaks to ”aggressive tax planning” – evidence is further that Sweden and then Denmark dropped the corporate tax rate from January 1, 2013 – a move on the Danish part I always considered defensive on the part of Denmark (loud protests that social security recipients should pay for capitalists profits – you know that song). It most certainly was not the Swedish government’s cup of tea either, so they had been pressured by somebody. Danish government made two clear exceptions, oil companies and banks. So my guess (and it is a guess) is that the three Scandinavian countries were severely annoyed and laid aside other differences. This agreement could – with a bit of forced marching – be in place before New Year.

The “Big Five” in the European Union – presumably including both France, Spain and Italy – had already made FATCA agreements with the USA, so that is in the clear!

No, I think the key to this is Austria. They suddenly on Wednesday declared that Austria would agree to an automatic exchange of data beginning in 2015.

Wading further into the quack mire of guesswork: I think this is a fall out from Cyprus. Russians lost a terrible lot of money by the haircut to depositors on Cyprus – notably the Greek didn’t.

Now Austrian banks have very business with Eastern Europe and Russia. Russia is not about to repeat the smarting sensation of Cyprus. Whatever losses depositors should take – it should not be taxes that should have been paid in Russia. Again Russians could probably constitute a bank run on Austrian banks that would be more than annoying.

Die Presse in Austria hints that Austrian Bundeskanzler Faymann has had talks with Angela Merkel.

The other thing is the blunt opening of negotiations with Switzerland, Andorra, Monaco, Liechtenstein and San Marino – I mean: Lumping Switzerland into that nursery is more than a hint – it is a humiliation. Switzerland at least belongs in primary school. But the finger is pointing in the eye: “Switzerland is not too big to suffer very badly”.

The upcoming G8 summit also points to Putin and Russia. The European Union and Obama are likely to stand shoulder to shoulder on this one: If Russia does not realise that they can’t have it both ways, they will lose money – a lot – and fingers are itching.

Shall we hazard a guess? Putin just might consider increased tax revenue a very good thing – and co-operate.