Banking Secrecy, The Turning Point
The fight against tax evasion has taken a new shape in recent days. The decision by Luxembourg and Austria to abandon banking secrecy and to accept the automatic exchange of information, and the initiative of five European ministers arguing for a European model of FATCA (Foreign Account Tax Compliance Act) put growing pressure on those reluctant to relax banking secrecy, starting with Switzerland.
On Wednesday, the Irish Presidency of the European Union (EU) confirmed that the fight against tax evasion is included on the menu of the ECOFIN (Finance Ministers of the Twenty-Seven member states) during the informal meeting, which will be held Saturday in Dublin. This topic was not on the agenda previously. But it has become essential since this weekend.
On Sunday, Luxembourg Finance Minister, Luc Frieden, lit the fuse by claiming that his country was not opposed to a system of automatic exchange of information, something the EU had been requesting for years.
Since then, it has become a runaway train. Diplomats, lobbyists and journalists, who had not planned to make the trip to Dublin, changed their minds and decided to show up anyway. “The ECOFIN will not take a formal decision, but we know that the point of no return in relation to banking secrecy is achieved,” said a senior European official familiar with the matter.
Luc Frieden’s declaration has indeed sent a shock wave. A first in Luxembourg where the financial industry (141 banks from 26 countries and 3,840 investment funds) has built its strength through banking secrecy. The Association of Banks and Bankers hastened Luxembourg on Monday and asked for clarification from the Minister.
The decisive blow was given yesterday. In his “Address to the Nation” speech to the parliament, Luxembourg Prime Minister Jean-Claude Juncker announced that the automatic exchange of information will be effective in the Grand Duchy starting January 1, 2015. In a statement released the same day, the government confirmed that the data on interest payments for individuals resident in another EU country would be released so that they can be taxed in the jurisdiction in which they live. Jean-Claude Juncker tried to reassure his fellow citizens by stating that this measure did not mean the end of the financial industry in Luxembourg, but rather the beginning of a new era.
The shock wave was also felt in Austria, which, like Luxembourg, was previously opposed to the automatic exchange of information. On Monday, after Luc Frieden’s words, the authorities remained firm in Vienna: there was no question of giving in. But for many analysts, the decision by Luxembourg will produce a domino effect. Vienna held its stance for one day. On Tuesday, through the voice of its Chancellor Werner Faymann, Austria said that it was ready to negotiate the lifting of bank secrecy for foreign residents with accounts in Austria.
The European Commission could only rejoice at these new initiatives. In a first reaction, the Commission recalled that she filed, in December, thirty proposals to fight tax evasion and expected that states provide the means to act upon those proposals. Yesterday, Commissioner Semeta again pleaded in this direction, adding that the measures concerned all twenty-seven states and that they would be more effective than an initiative by just five member states.
Earlier this week, a spokesman for the Commission pointed out that tax evasion costs more than 1 trillion euros to the European economy, adding that this significant sum would be very useful in times of crisis. “For the Commission, there should be no complacency for individuals, companies or countries that circumvent international law to organize tax evasion,” was the message he tried to hammer home.