EU Ministers Agree to Legislation Aimed At Ending Bank Secrecy Laws of Member States

Dec 10, 2010   

On December 7, 2010, the European Union (“EU”) announced an agreement that will require its members to exchange tax information on nonresident citizens in an effort to fight tax fraud. When fully implemented, the agreement is expected to end the use of bank secrecy of members such as Luxembourg and Austria that have allowed EU citizens to hide money from tax authorities.

Under the agreement, the Organization for Economic Development (“OECD”) standard for information exchange on request will be implemented in the EU. However, when the exchange of information is with EU tax authorities and not individual member states, the EU must identify the person under investigation and the tax purpose for which the information is sought.

Additionally, the agreement provides for the automatic exchange of information to be introduced on a step-by-step basis. Starting in 2015, member states will automatically communicate information in five categories: 1) income from employment; 2) director fees; 3) certain life insurance products; 4) pensions; 5) ownership of and income from immovable property. However, member states will not be required to send more information than they receive from the requesting member state in return. By 2018, automatic reporting will extend to dividends, royalty payments, and capital gains.

The EU legislation comes at a time when countries around the world once thought of as tax havens are moving away from tight bank secrecy laws and into an era of openness and transparency. As we previously reported, the United States and Panama recently entered into a bi-lateral tax information exchange agreement for many of the same reasons. A complete list of tax information exchange agreements has been published by the Organization for Economic Cooperation and Development (“OECD”) and can be found here.

The OECD is one of the leading groups calling for more transparency in banking laws. With the backing of the G20, the OECD has taken steps to encourage tax information exchange agreements by proposing a model tax exchange agreement. The OECD also maintains its “blacklist” of uncooperative tax haven nations, its “grey list”, which names nations that have committed to OECD standards but have yet to fully implement the required changes, and its “white list” of countries that have substantially implemented the tax rules. As countries commit to transparency and enter into fully enforceable information exchange agreements, the OCED reclassifies nations.

If you have any questions regarding the potential impact the EU tax exchange agreement may have on your business or any other tax provision, please contact Fuerst Ittleman at contact@fidjlaw.com.