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Austria, Luxembourg Warned Over "Cat And Mouse" Banking Secrecy Tactics

by Ulrika Lomas, Lowtax.net, Brussels
21 January, 2014

As negotiations between Switzerland and the European Commission officially begin on a planned revision of the EU-Swiss savings tax accord, European Tax Commissioner Algirdas Šemeta has warned Austria and Luxembourg that there is no more time "to play cat and mouse" on envisaged changes to the EU's own Savings Tax Directive.

The European Commission aims to ensure that the EU-Swiss savings tax accord is in line with the planned revision of its own Savings Tax Directive. The objective of the revision is to close the gaps and prevent individuals from evading taxation of their interest income by interposing bogus companies or employing complex financial instruments.

In an interview with Der Standard, EU Tax Commissioner Šemeta made clear that the European Union intends to reach an agreement with Switzerland on an automatic exchange of information (AEI), especially given that the Confederation has recently concluded a Foreign Account Tax Compliance Act (FATCA) intergovernmental treaty with the US.

According to Šemeta, Switzerland is under great pressure to sign up to AEI, primarily as a result of the changed political environment, and the fact that automatic information exchange is due to become the global standard shortly. The OECD is currently finalizing its proposed AEI concept, which it hopes will be adopted by G20 Finance Ministers in February, Šemeta explained.

If G20 Finance Ministers fail to unite behind the OECD's proposal, the EU could as a last resort revert to the European Commission's 2012 recommendation, advocating that any countries unwilling to comply with international standards be placed on a so-called "black list" of countries deemed uncooperative in tax matters. Such a measure could give rise to severe sanctions, including the termination of double taxation agreements (DTAs), Šemeta emphasized.

However, the EU and Switzerland both have an interest in swiftly resolving the issue, Šemeta stressed, underscoring the importance of ensuring clarity and certainty for the Confederation's banks as quickly as possible. Uncertainty is bad for the business climate, Šemeta noted.

Questioned on whether Luxembourg and Austria are merely blocking progress within the European Union on planned modifications to the EU Savings Tax Directive, by refusing to lift their banking secrecy unless a level playing field has been secured with Switzerland, Šemeta pointed out that in December all EU heads of Government and state pledged to reach an agreement on a revised Savings Tax Directive by March, including Luxembourg and Austria.

It would be "extremely compromising" for the EU and would undermine its credibility if it is unable to reach a consensus internally while at the same time seeking to apply pressure at international level, Šemeta said. Underlining the EU's determination to guarantee a level playing field with neighboring states, by negotiating strong agreements, Šemeta insisted that this can not constitute a pre-requisite for reaching an accord within the EU. If everyone demands that the EU wait until a concession is obtained from Switzerland, there will be no progress, as Switzerland will then merely await action from Luxembourg and Austria, he argued, maintaining that someone must take the first step.

Concluding, Šemeta confirmed that the proposed start date for AEI is 2015. The overwhelming majority of EU countries agree that the EU must spearhead the campaign for automatic information exchange, he ended.

The first official meeting between Switzerland and the EU on a revision of the taxation of savings agreement took place in Bern on January 17. The aim of the meeting was to take stock of the situation and to establish the technical details for the negotiations.

The meeting followed on from the Federal Council's adoption on December 18, 2013, of the negotiation mandate to revise the taxation of savings agreement with the EU. On May 14, 2013, the European Commission, for its part, was instructed by the Economic and Financial Affairs Council (ECOFIN) to negotiate an amendment of this agreement with Switzerland.

The negotiating parties have agreed to hold regular meetings in the first half of 2014.

During the course of the discussions Swiss State Secretary Jacques de Watteville and his EU counterpart Heinz Zourek also discussed business taxation. A solution will be sought which is in line with international standards, strengthens Switzerland as a business location and is financially viable for the Confederation and the cantons.

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