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February 2, 2009updated 05 Jun 2017 11:40am

EU campaigns against banking secrecy

The EU has introduced two proposals for new directives aimed at combating tax evasion, which have been described as a first step towards abolishing banking secrecy Following the Liechtenstein tax-avoidance scandal which saw the former head of Deutsche Post receive a two-year suspended sentence The European Commission has opened a new front in the fight against tax fraud with proposals aimed at weakening bank secrecy laws in Austria, Belgium and Luxembourg.

By John Evans

The EU has introduced two proposals for new directives aimed at combating tax evasion, which have been described as a first step towards abolishing banking secrecy. John Evans reports on this and other recent tax policy developments as well as more fall-out from the LGT scandal.

 

Following the Liechtenstein tax-avoidance scandal – which saw the former head of Deutsche Post receive a two-year suspended sentence – The European Commission has opened a new front in the fight against tax fraud with proposals aimed at weakening bank secrecy laws in Austria, Belgium and Luxembourg.

EU Tax Commissioner Laszlo Kovacs said the authorities could not crack down efficiently on tax evasion in Europe if member states refused to exchange key information with each other by using the excuse of banking secrecy.

“It is unacceptable that bank secrecy in one member state can be allowed to constitute an obstacle to the correct assessment by the tax authorities of another member state of the amount of taxes due by one of its resident taxpayers,” Kovacs said, introducing his proposals.

The first of the new proposals relates to improved administrative cooperation in the assessment of taxes, and the second aims to improve mutual assistance in the recovery of taxes. Tax fraud including VAT scams in the EU is estimated at €200 billion to €250 billion ($256 billion-$320 billion) annually, or as much as 2.5 percent of the bloc’s overall economy.

Kovacs’ plans would affect Austria, Belgium and Luxembourg in particular because they are the only EU countries that have rigorous bank secrecy rules. The proposals, which need the backing of the 27 member states, cover all taxes other than excise and value-added tax.

The commissioner described the proposal as a “first step” towards abolishing bank secrecy because it would only apply when one EU country requests tax information about a resident of another EU country.

Under the proposal, however, residents of Austria, Belgium and Luxembourg would continue to enjoy bank secrecy as regards the authorities in those countries.

“We are not asking member states to abolish bank secrecy as such but we want to eliminate its potential abuse in the area of international tax administrative cooperation, protecting tax fraudsters or tax evaders,” Kovacs said.

Austria’s finance ministry has said that, while it was willing to cooperate, its banking secrecy rules would not be changed. It argues it would be at a competitive disadvantage to non-EU members Switzerland and Liechtenstein, which retain secrecy.

The commission’s proposals would also allow tax inspectors from one EU country to extend their investigations into the territory of another member state and seek to improve cooperation in recovering unpaid taxes.

Zumwinkel gets suspended sentence

One of Europe’s biggest tax-evasion trials resulted in the conviction of former Deutsche Post head Klaus Zumwinkel. The high-profile businessman was charged in 2008 after his name appeared in a list of alleged tax evaders bought by Germany’s BND intelligence service from a whistle-blower at a Liechtenstein bank, LGT.

A state court in Bochum, Germany, gave Zumwinkel a two-year suspended jail sentence and a €1 million fine. During the hearing, he confessed to evading about €960,000 in taxes, which he had hidden in trust funds in Liechtenstein.

Zumwinkel was one of many wealthy Germans caught in a sting after tax authorities examined the list, handed over in the form of a data disc. British and American tax authorities also bought the disc, and prosecutions are expected shortly.

Judge Wolfgang Mittrup told the Bochum court that Zumwinkel was lucky to avoid jail. German law makes imprisonment mandatory for anyone who evades more than €1 million in taxes in a single year, but an accounting slip-up meant it was discovered too late that €1.2 million was not paid in 2001.

Meantime, Liechtenstein is ready to consider working more closely with Germany’s tax authorities after losing client funds since the German tax evasion case erupted last year.

Prince Maximilian von und zu Liechtenstein told the Welt am Sonntag newspaper that LGT, owned by the country’s ruling family, had lost several billion Swiss francs in client funds since the tax case erupted involving Zumwinkel.

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