Bye Bye Bank Secrecy: Tax Havens Give In to EU Pressure
On Thursday, it was Liechtenstein and Andorra. On Friday, Austria, Luxembourg and Switzerland likewise decided to change their banking laws to allow for more cross-border cooperation. The days of European tax havens are numbered.
It has been a bad couple of days for tax evaders in Europe. On Thursday, Liechtenstein and Andorra announced that they were loosening their strict bank secrecy laws. On Friday, the tiny countries were followed by Austria, Luxembourg and Switzerland. In the future, investigators looking into tax evasion will be able to ask their colleagues in these countries for help, provided they have probable cause. They will then be allowed to have a look at suspect accounts. Tax evasion will become much more difficult.
In the future, Swiss accounts won't be what they used to be.
The spokeswoman added, however, that the European Savings Tax Directive, which allows Austria, Belgium and Luxembourg exceptions when it comes to bank secrecy, will not be immediately changed. The three countries do not take part in standard EU information exchange when it comes to income on interest.
According to the law, however, this exception is to be annulled as soon as non-EU states in Europe, like Switzerland or Liechtenstein, agree to the kind of information exchange undertaken within the Organization for Economic Cooperation and Development (OECD). But while Switzerland, Austria and Luxembourg said they would cooperate on a case-by-case basis, information sharing would not be automatic as is normal within the EU.
"The decision of the five countries represents substantial progress," says banking expert Wolfgang Gerke. He says that one can now expect more honesty when it comes to taxes. "One can certainly complain about high taxes," he says, "but tax evasion is not a solution." He said that huge loopholes have now been closed.
Dieter Hein, from the Frankfurt investment research company Fairesearch, says that the relaxation of bank secrecy laws brings the five countries in line with standard global practice. "The move will make it easier for global regulation of the financial markets," he said. He said that the recent crisis has made it clear just how important such controls are. "Investors have also used tax havens because there is little or no oversight."
Until now, the countries in question had been in the habit of turning away foreign tax offices when they came asking for information. Banks were forbidden from passing on information about their foreign customers. The only exceptions were made in cases of punishable offenses. Switzerland, for example, drew a line between tax fraud -- like patently false income claims -- and tax evasion, or the simple "accidental omission" of information on tax declarations. That is now going to change.
Brussels on Friday was still not entirely convinced that the announcements are genuine. A Commission spokeswoman says she is hopeful that the five countries will now make the promised changes -- changes that the Commission has been demanding for years.
Observers say that such doubt is completely justified. For years, European tax havens have ignored demands from the European Union for cross-border cooperation among tax offices. Switzerland finally backed down due to immense pressure from the US, leading to the transfer of data on 300 suspected tax evaders from the Swiss bank UBS to American investigators earlier this year. Some have interpreted the move to mean the end of Switzerland as a global banking leader.
Cooperation from Liechtenstein is likewise seen as a huge step. The principality relied heavily on its reputation as an attractive tax haven -- the mini-country was especially good at attracting foundations. But the tax affair surrounding the former head of Deutsche Post, Klaus Zumwinkel -- whose case broke due to data stolen from the LGT Group -- seriously damaged the country's repute. When Liechtenstein began indicating in recent days that it was turning its back on its days as a tax haven, pressure on Switzerland to do the same became difficult to ignore. Indeed, Bern followed Liechtenstein's announcement just one day later.
No More Spineless Warnings
The consequences could be major -- billions in capital could now begin flowing out of these countries. Indeed, Switzerland and Liechtenstein will likely ask for significant concessions as a result of their new cooperation.
The changes come after years of pressure, much of it coming recently from Germany and France, to accept OECD rules. The organization began an initiative in 1998 aimed at ending unfair tax practices. Tax policies in 41 countries were criticized, but OECD members Switzerland, Austria, Belgium and Luxembourg blasted the initiative, concerned about their own bank secrecy rules.
This time around, though, Germany, France, Great Britain and the US signalled that they would not merely be content with sending spineless warnings. They threatened that the G-20 would publish a black list of uncooperative countries when the G-20 meets in April in London.
It seems to have worked, and not just in Europe. Hong Kong and Singapore also decided they didn't want to be named in the same breath with tax havens like the Bahamas, Monaco and the Channel Islands -- and they recently changed their practices.
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