Push for automatic exchange of tax information gathers momentum in Europe

Ahead of a meeting of the Economic and Financial Affairs Council and the European Council, European Commission President José Manuel Barroso announced that the commission will propose an expansion of the automatic exchange provisions of the Council Directive 2011/16/EU to cover “all relevant types of income”. If implemented, the change would represent a large step in the global move towards greater tax transparency.

Tax fraud and evasion is one of the two main topics on the agenda for the May 22nd meeting. Barroso noted in a letter to members of the council that, “At a time of fiscal consolidation, Member States are not maximising the tax revenue they could have, and the issue of fairness is squarely on the agenda.” A background report he sent with the letter states that, “The fight against tax fraud and evasion is important both for the protection of national budget revenues and for the confidence of citizens in the fairness and effectiveness of tax systems.”

The EU has developed what the background report describes as a “comprehensive toolbox” of methods to help member states fight tax fraud and tax evasion. These tools include EU legislation on improved transparency; exchange of information and administrative cooperation; co-ordinated actions recommended to member states (eg, on aggressive tax planning and tax havens); and various country-specific recommendations.

The report also describes the EU as a “world leader” in automatic exchange of information between countries, which it first implemented in 2005 for savings income and which currently applies to investment funds, pensions, innovative financial instruments and payments made through trusts and foundations. Starting in 2015, the EU’s Administrative Cooperation Directive calls for automatic exchange of information about income from employment; directors’ fees; life insurance products not covered by other EU instruments; pensions; and ownership of and income from immovable property.

However, EU member states are not using the existing tools “effectively and comprehensively”, according to the report.

The report calls for the EU to agree on a “coordinated position to make automatic exchange of information a global standard guiding international taxation.” It proposes that the EU work with the G8, the G20 and the Organisation for Economic Co-operation and Development (OECD) to “secure a firm commitment to the development of new international rules that takes into account existing EU arrangements for automatic information exchange.”

The report also proposes that automatic exchange of information within the EU be extended to “all relevant types of income”. It says that the European Commission will introduce legislation to amend the EU Administrative Cooperation Directive to expand the scope of automatic exchange of information to include dividends, capital gains and other income, starting in 2015.

British territories agree to information exchange

On May 2nd, the UK government announced that several British territories, some of which are considered tax havens, have agreed to participate in the pilot information exchange programme that is being set up by the UK, France, Germany, Italy and Spain. According to the statement, Anguilla, Bermuda, the British Virgin Islands, Montserrat and the Turks and Caicos Islands have all agreed to sign on to the pilot programme, which is modelled on the intergovernmental automatic information exchange agreements developed by the United States under its Foreign Account Tax Compliance Act.

Related CGMA Magazine content

“US, UK, and Australia Announce Cooperative Venture Against Tax Evasion”: The United States, the UK and Australia announced plans to share tax information on a large number of trusts and companies throughout the world that hold assets on behalf of owners. The countries are willing to share the owners’ identities and the identities of their tax advisers with other jurisdictions’ tax administrators.

—Alistair Nevius (anevius@aicpa.org) is editor-in-chief, tax for CGMA Magazine.