EU Commissioner Semeta calls for progress on the Savings Directive

Yesterday we sent a letter (see below) to Finance Ministers and EU Permanent representatives expressing concern about German government pressure on the European Commission to drop its opposition to the regressive bilateral deals with Switzerland being negotiated by Germany and the U.K. We have commented in depth on why these deals are shabby and against public interest, but Germany and the U.K. persist with putting the interests of their tax evading elites ahead of the 99 per cent who suffer from tax evasion.

Another letter on the same subject also dropped into European Finance Minister's letterbox yesterday, this one from European Commissioner Algirdas Semeta (pictured above). Semeta's letter re-iterated the EU's proposal, tabled in 2008, to amend the Savings Directive, notably by extending the definition of interest payment and by introducing improved mechanisms for identifying the beneficial owners of offshore structures. He also made clear that bilateral deals must be compatible with EU law. Concerning the bilateral deals with Switzerland, Semeta writes:

"In this context Member States should refrain from negotiating, initialling, signing or ratifying agreements with Switzerland, or any other third state, insofar as any aspects regulated at EU level might be touched upon. In practical terms, this means:

* Concerning direct taxes and the future, any bilateral agreement should include a carve-out of areas already covered by existing EU instruments and areas included in proposals for their modification. In board terms, Members States are free to agree upon tax measures regarding all other forms of income and capital."

Which brings us to the crunch point of Semeta's letter:

"In these difficult times I believe that it is important that we demonstrate the commitment of the EU and its Member States to improve tax collection and the respect of Member States' tax laws. The strengthened and proportionate provisions contained in the amending proposal (of the Savings Directive) provide a sound basis for a real improvement of the existing mechanisms and should be complemented by parallel agreements on equivalent measures with partner jurisdictions. Given the interest of all Member States in ensuring full respect of their tax laws, I feel it is more urgent than ever to give a high priority in the Council to mandating the Commission to open negotiations with our partners including Switzerland and I look forward to significant advances in this area in the near future." (our emphasis added)

In other words, stop blocking EU negotiations on the Savings Directive with Switzerland, get on with agreeing the proposed amendments, and make damn sure that any deals along the lines of Rubik do not in any way impact the effectiveness of the proposed amendments to the directive.

We heartily endorse the Commissioner's comments.

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TJN's letter to Finance Ministers:

5th March 2012

Dear Minister

On behalf of the Tax Justice Network, I am writing to express concern about a decision taken at the meeting of the EU permanent representatives on 14 February to remove a crucial issue from the agenda of ECOFIN’s last meeting on 21 February 2012. The issue involves giving the EU a mandate to negotiate with Switzerland and four other countries for technical amendments to the EU Savings Tax Directive.

Obtaining this mandate would be a first required step in a three-stage process that would bring about drastically improved automatic tax information exchange and tax collection across Europe and beyond, through amendments to the EU Savings Tax Directive.

As we understand it, Germany was the only country to demand that this issue be removed from the Agenda. Our sources tell us that this mandate would have been agreed at ECOFIN if it had been discussed, since Austria, Luxembourg and Italy are no longer believed to be prepared to veto it.

Over the past two years, Germany and the United Kingdom have negotiated highly controversial bilateral anonymous withholding tax deals with Switzerland. These are not yet ratified or in force and are currently being challenged, by the European Commission and others.

The European Commission has repeatedly made clear that the bilateral deals can only be accepted if those parts of the agreements that conflict with European legislation are removed.

This means that, among other things, the entire issue of savings interest is removed from the scope of the agreements (because the EU, through its Savings Tax Directive, has competence in this area.) This demand by the European Commission represents a major (and welcome) threat to these pernicious bilateral deals, as the removal of ‘interest’ from their scope renders them functionally ineffective.

Now it appears that Germany is demanding that the European Commission withdraws its opposition to these bilateral deals before it is willing to discuss the aforementioned mandate, which would allow for the technical amendments to the EUSTD to progress.

This is unacceptable and would be deeply harmful to European interests, since allowing deals that effectively conflict with EU legislation would allow countries such as Austria and Luxembourg to say that they do not face a level playing field, and thus provide them with a pretext for blocking further progress with the Amendments.

We understand that Germany’s Finance Ministry is trying again to remove the same issue from the agenda of the ECOFIN meeting on 13 March 2012.

We are extremely concerned about Germany’s actions.

In view of the threat to European and international tax cooperation, we ask your government to stand up against Germany’s position.

Yours Sincerely,

John Christensen

Director, Tax Justice Network