Europeans Launch New Attack against Tax Competition

Hoping to get the ability to track – and tax – flight capital, uncompetitive welfare states in Europe are launching a new attack against so-called tax havens. Nations such as France and Germany want to expand the savings tax directive so that financial privacy laws are emasculated and more forms of saving and investment are subject to extra layers of taxation. Fortunately, there are some EU nations that still respect privacy rights, and they are very reluctant to change their policies merely because other nations have bad tax law. Moreover, non-EU jurisdictions such as Switzerland and Liechtenstein are even more likely to resist. The International Herald Tribune reports on the conflict:

Under pressure from Germany, the European Commission will draw up new proposals this year that are likely to widen the scope of legislation on tax evasion - and close a loophole under which trusts and some other savings escape the same controls as cash. …However the newest initiative seems destined to re-ignite the long-running and bitter EU battle over banking secrecy. On Tuesday, Luxembourg, Belgium and Austria hinted that they would resist any moves to force them to provide information to other tax authorities on the savings of nonresident investors. …Germany and Britain want Luxembourg, Belgium and Austria to agree to exchange information so that the EU can apply pressure to the non-European jurisdictions to do the same. Broadly speaking, the tax also is only applied on interest earned on cash deposits, not dividends or the type of trusts that were being used in Liechtenstein. During a meeting Tuesday, the German finance minister, Peer Steinbrück referred specifically to the “spectacular case of tax fraud” emanating from Liechtenstein, according to one official who attended the closed-door discussion. …”German tax payers have effectively been made fools of by high earners using the system to avoid paying tax,” said Steinbrück, who described evasion as a “social and moral issue,” the official added. …”Tax paradises in practice become tax parasites,” argued Anders Borg, the Swedish finance minister. …However the EU is likely to be much more divided about banking secrecy. Jean-Claude Juncker, Luxembourg’s premier and finance minister, made a veiled threat at the Tuesday meeting to stall any potential changes. “I look forward to many years of fascinating, fundamental, discussion,” Juncker said, according to the official. …Kovacs also said that he would escalate efforts to persuade other jurisdictions to abide by the terms of the deal, including Hong Kong, Macao and Singapore.