The European Union Savings Tax Directive is being amended
There’s a very good web site that explains what the amendments are all about. It’s technically very good. I recommend it to all who are interested.
15/01/2010 Spain scrambling to forge accord on savings tax.
Europolitics reports:
Spanish Finance Minister Elena Salgado is having a series of meetings with her EU counterparts to try to hammer out an accord on a revision of the Savings Tax Directive ahead of a Council meeting, on 19 January. EU finance ministers will convene in Brussels to make up ground lost in December 2009, when Austria and Luxembourg put their foot down over the automatic sharing of savers’ bank account information.
Changes to Directive 2003/48/EC were proposed in November 2008 to close loopholes for interest paid via tax-exempt trusts and charities, as well as to include interest payments on life insurance and other complex financial products. The revision is being negotiated alongside anti-fraud agreements with Switzerland, Liechtenstein, Andorra, San Marino and Monaco, as well as two directives on administrative cooperation (COM(2009)29) and tax recovery (COM(2009)28).
Moves to combat tax evasion have intensified since last April’s G20 meeting in London, when the Organisation for Economic Cooperation and Development (OECD) published a black list of tax havens, naming and shaming the five non-EU tax centres – alongside Austria, Luxembourg and Belgium – for not following through on promises to sign tax information exchange agreements with at least 12 other countries (the internationally agreed standard).
Austria and Luxembourg – as well as Belgium - have a temporary opt-out under EU savings tax rules, which came into force in 2005, allowing them to continue applying a withholding tax to non-residents’ interest payments, rather than swapping bank account data with other countries. But if Liechtenstein and the other four non-EU states agree to exchange information on request – which is part and parcel of the new anti-fraud agreements – it will trigger the end of the EU’s transitional period. It means Austria, Belgium and Luxembourg will have to switch to automatic data sharing with other EU member states, while Switzerland and the rest of the non-EU jurisdictions will not. Luxembourg is furiously opposed to mandatory data-sharing if foreign tax shelters are not subject to similar rules, while France is pushing to tighten up standards across the board.
Luxembourg’s behaviour annoys me intensely. There is only one reason for the European Union Savings Tax Directive: it is designed to stop tax evasion.
In that case it seems to me that Luxembourg is supporting tax evasion.
And that makes me very angry.
There are signs of progress for the European Union Savings Tax Directive.
Good news.
The Channel Islands trust industry has come out fighting in response to an attack by Austria’s finance minister, who reportedly accused providers of promoting investor secrecy.
Ahead of December 2’s ECOFIN meeting of European finance ministers, at which political support for changes to the EU Savings Directive will be sought, Josef Pröll is said to have demanded action against trusts, and singled out the Channel Islands in particular for being responsible for helping mask the identity of settlors – those who set up the trusts – and therefore evade taxes.
Pröll has been quoted as threatening that Austria would use its veto on the proposed broadening of the directive unless trusts were included.
The exact meaning of his comments is unclear, however. Trusts are already included in the proposed broadening of the directive.
Some commentators believe there may be a hidden agenda aimed at extracting further concessions from the UK in relation to its trust sector in exchange for Austria giving up a withholding tax system that it currently operates under the EUSD.
Looks like dog eat dog.
And this has to go forward.
A minor furore has broken out in the comments section of this blog on whether or not I am right to claim that about 50% of all EU resident private bank account holders in Jersey opt for tax withholding bon their accounts.
I suggested the current rate was abut 50%. The evidence came from recent interviews undertaken in association with media broadcasts with bankers in the Channel Islands. I thought that a pretty good source for an off the cuff comment.
But the Channel Island commentators on here – many of whom are, I suspect, paid to comment, came back strongly. Take this comment:
Richard
Your 50% figure is way out. I have spoken this evening to three MDs of major Jersey banks, all well known to me, who confirmed that only around 10% of their clients had opted for withholding tax.
And this one:
Richard,
I strongly agree with Rupert. Your 50% figure is way wrong…
Perhaps the 50% you refer to is small investors, each with a average £10,000 deposit. The other 50% with an average of £1,000,000 savings are using methods to avoid the EUSD.
So, as usual, I thought a little objective evidence would be useful. I don’t always credit the government of Jersey with objectivity, but on this occasion I will. It publishes data on this issue, and as it has noted in 2005 about 30% of account holders opted to exchange information with their countries of residence on their income paid in Jersey. By 2008 this had risen to 57%, up from 55% in 2007.
So I am slightly out – but really not by very much at all.
But those who have commented are massively out, supplying straightforward misinformation in the process, as is normal for those who trade in secrecy and therefore think themselves unaccountable for anything they say.
But this leads me to a more important question. About 95% of comments on this blog are from people who supply this sort of misinformed propaganda that is deliberately misleading on what happens in tax havens. I waste a lot of time correcting the nonsensecommentators write. and I am asking myself, why bother? Why not just turn the comment facility off? Or at least, reject all such comments allowing on only those who have reasoned argument to put forward?
Comment please before I decide what to do? and I am aware of the paradox of asking.
Tax call: Jersey will not act in isolation » Business » News » This Is Jersey.
Classic pig headedness and unethical conduct from Jersey here:
JERSEY faces renewed pressure to disclose tax information about Island bank accounts to other EU countries.
The Foot Report into offshore finance centres has recommended that Jersey set a firm date for introducing the European Union Savings Directive (EUSD) – which would mean that the Jersey tax office would automatically disclose interest earned in Jersey bank accounts held by EU residents to their national tax authorities.
Both Jersey and Guernsey have opposed the move, saying that to sign up to the EUSD before their competitors could damage the finance industry.
Jersey’s current position is that it will do so when everyone else does – when there is a ‘level playing field’ – but the report states that Jersey should get on with it, and calls on the UK to put pressure on other countries to sign up too.
The European Union Savings Tax Directive has one objective: the ending of tax evasion.
The withholding option with no information exchange allowed as an interim measure under the European Union Savings Tax Directive permits continued tax evasion by the EU resident holders of bank accounts in Jersey. My information suggests at least 50% pof account holders deny their own government information on their income from Jersey bank accounts. It is inevitable that the vast majority will do so because they are tax evading. But Jersey will do nothing to stop this obvious criminal abuse of other countries’ tax law.
This is classic secrecy jurisdiction behaviour. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction. They do in addition create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
The withholding option under the European Union Savings Tax Directive is such a veil of secrecy.
And then Jersey has the cheek to say it is transparent. The exact opposite is the truth - and it is not chance that is the case - it is deliberately so.
On this occasion Michael Foot and I are definitely on the same side.
Note added 24.8.09: please note the Nationwide not say they do have this data - but that they did also report otherwise to the Times. See here.
The Times has reported:
Nationwide building society confirmed last week that it is responding to inquiries from HM Revenue & Customs (HMRC) just a week after the taxman secured an order compelling 308 institutions to turn over details of all offshore accountholders.
In a sign that the Revenue’s move could provoke a row, Nationwide said it may not be able to comply with the order to disclose UK customers with offshore accounts.
It said: “Nationwide has been in active discussion with HMRC on this matter. However, we do not believe our records enable us to identify those customers who live in the UK and have an offshore account. We have already informed HMRC of this, but inquiries are ongoing.”
This is an extraordinary admission. Let’s just for a moment consider what it means. The UK’s largest mutual building society, which operates internationally from the Isle of Man, where it is one of the largest deposit takers, and yet it admits that it has no idea whether it is operating accounts from that location form people who are resident in the UK, or not.
Let me not overstate the significance of this. Without in any way overstating what the Nationwide is saying this means, if correctly reported (and I stress, I am assuming that is the case):
Nationwide may have failed to operate money laundering rules
The nationwide seems to be saying it has not got basic money laundering controls in operation in its Isle of man operation.
Money laundering rules universally require that a financial institution ‘knows their client’.
The Financial Action Task Force is responsible for setting standards on this. Its recommendation 5 says:
Financial institutions should undertake customer due diligence measures, including identifying and verifying the identity of their customers.
It goes on to say:
These requirements should apply to all new customers, though financial institutions should also apply this Recommendation to existing customers on the basis of materiality and risk, and should conduct due diligence on such existing relationships at appropriate times.
In other words, the account being an old one is no excuse. The Isle of Man will have its own version of this rule, but as anyone, anywhere who has tried to open a bank account knows the identification required fundamentally comprises two parts. The first is who you are (for which a passport is often required) and the second part, usually and in my opinion essentially, requires proof of where you are i.e. your address.
It seems the Nationwide has admitted to not having this data.
How do we know they require it though? Because the accounts they operate in the Isle of Man must comply with the requirements of the European Union Savings Tax Directive.
Nationwide may have failed to ensure compliance with the European Union Savings Tax Directive
The European Union Savings Tax Directive requires that a bank in the Isle of Man know where its customers are. If they do not the EUSTD cannot be properly applied. This is because if the customer is in an EU state then the Nationwide must ask the customer a) if the want tax withheld on interest payments on the account or b) if the want data on interest payments sent to their domestic tax authority. If they do not know the customer is in the UK they cannot do this. Prima facie the requirements of the EUSTD cannot be met as a result. This clearly breaches the requirement of law.
Of course the Nationwide will also be failing to ensure appropriate tax is paid in the UK as a result as a consequence. I suspect that puts it in breach of UK law too, although I’ll take a little while to think about which one, I admit.
Failure to keep proper books and records
If as the Nationwide suggests it has not got proper records of where its customers are it must be failing to apply the EUSTD properly and as a result it must be failing to keep proper books and records in its Isle of Man subsidiary because it cannot be properly recording to whom it has liability for any tax owing, if at all. In that case one has to question whether the auditors have qualified the accounts or not. I have seen no hint of this, anywhere.
Consolidated result is it true and fair?
If a material subsidiary is failing to keep proper books and records, as seems possible in this case as a consequence of serious breaches of money laundering and taxation regulation meaning it cannot know to whom it has liability then one has to ask if that is material for the group as a whole. It may not be. But how do we know? Are the UK accounts mis-stated as a result?
These are massive regulatory failures, but matters do not end there. Others are also clearly at fault if the |Nationwide’s reported admission is true:
What is the liability of the auditors?
One of the most basic responsibilities of an auditor is to ensure that their client is operating in accordance with appropriate regulation. If the client is not there is obvious significant financial risk and risk that they are not a going concern. It would be entirely appropriate to expect an auditor to have tested basic money laundering controls on an offshore bank (and they don’t come more basic than this). And yet this issue has not emerged until now, when HM Revenue & Customs have demanded the data. Why not, one wonders? My old friends PricewaterhouseCoopers audit the Nationwide.
Making a mockery of regulation in the Isle of Man
There’s more though. Earlier this year Isle of Man Treasury Minister Alan Bell said:
The Island also has a strong track record of complying with international standards of financial regulation, as assessed by the IMF and others. A series of independent, external reviews over the past decade have enhanced our reputation as a well regulated centre for international finance.
The Nationwide statement, if true, drives a coach and horses through that claim. If one of your major deposit takers admits that it has not complied with the most basic Financial Action Task Force requirements that also means by default that the Island has not honoured its obligations under the EUSTD which then means its reputation deserves to be in tatters.
The fact that the Nationwide admitted this when HM Revenue & Customs comes knocking at its door is also telling. The Isle of Man clearly either does not know about it, in which case its regulation has failed, or did know about it and did nothing, which again leaves its regulation in tatters. The fact that the Nationwide appears to have done nothing until the UK took action also gives clear indication of what it thinks of the obligation it has to comply with Manx (Isle of Man) law: it would seem to treat it with contempt.
Everything the Isle of Man has ever claimed is blown apart.
And what we are witnessing is, in effect, a UK building society – one of the most respected at that – appearing to admit that it was operating a banking system that required that there be controls in place to prevent both money laundering and tax fraud and that tt did not take the required steps to ensure that either happened – despite it knowing, beyond a shadow of a doubt, what those requirements were.
This is no trivial matter. This means it might be, like UBS, turning a blind eye, at the very least, to the opportunities it has created for fraud to take place, and at the same time by default admitting that it has not taken the necessary steps to prevent that fraud – despite the European Union Savings Tax Directive having been in operation since July 2005, which necessarily required the Nationwide in the Isle of Man to know the exact address of all its customers.
Conclusion
Two conclusions for now:
a) Let’s not pretend that UBS was alone
b) Let’s not pretend Switzerland was alone.
UBS and Switzerland are typical of banking and secrecy jurisdictions, they’re neither of them an exception. What this means, I think, is that we have to assume all banks and all secrecy jurisdictions behave in the same way in the absence of evidence to the contrary.
I’ll turn to what I think should happen to the Nationwide and more generally in another blog.
From the Jersey Evening Post:
Jersey has plans to move to automatic exchange of tax information by 2011.
Treasury Minister Philip Ozouf has revealed that Jersey is already committed to the introduction of automatic information exchange mechanisms by January 2011.
Excellent.
Pity it’s taken so long and that so much effort had to be expended, but we’ve won.
Now it’s on to extending the directive and to shattering corporate and trust secrecy in these places.
[The Swiss finance minister] speaking in an interview with the Frankfurter Allgemeine Zeitung, said his German colleague, Peer Steinbrück, was “dreaming” if he expected “hundreds of millions of francs” in tax money to come pouring in.
Merz was responding to Steinbrück’s comments earlier this year that German taxpayers have deposited €200-300 billion (SFr130–196 billion) in Swiss bank accounts, and that Berlin loses €1 billion annually through tax evasion.
The Swiss finance minister said last year, for example, SFr137 million in taxes was sent to Germany, a figure Steinbrück called a “joke”.
“According to the latest figures, there is approximately SFr5.4 trillion in total assets invested in Switzerland,” Merz told the German newspaper. “Half of this is from institutional investors who have no grounds to evade taxes or commit fraud.”
As ever the Swiss tell less of the story than actually exists.
Half that institutional money is structured through companies, foundations and other arrangemnts precisely to remain out of view under the European Union Savings Tax Directive.
Sure, a DTA won’t uncover this. A smoking gun is still needed under a DTA. But then the European Union Savings Tax Directive is extended to privately controlled institutions, then watch the money come home.
Tax Evasion Row Gets Ugly - Forbes.com.
Forbes notes:
[T]actless Peer Steinbrueck has a reason for his rhetoric. Luxembourg’s Juncker is one of the 27 E.U. finance ministers who are expected to vote on changes to the E.U. Savings Tax Directive next month, a law which could help Germany claw back the 100 billion euros ($135.9 billion) that it claims to lose each year as tax evaders put their income in countries like Luxembourg and Switzerland.
A spokesman for ECOFIN, the council of 27 E.U. finance ministers that will ultimately decide on the directive, told Forbes that he expected it would come up for a vote at its next meeting on June 9 in Luxembourg. “I haven’t seen an agenda, but I personally expect it to come up for discussion,” Francois Head said. The proposals need unanimous consent to become law, and such legislation would affect Luxembourg the most, said Richard Murphy, founder of consultancy Tax Research.
I admit I don’t recall saying ‘most’ but it sure as heck will hit it hard.
But what is it’s counter argument to these necessary reforms? That it wants to harbour tax evaders? What else can it say?
