European Union and the Hunt for the Tax Cheat – Part II

By Leo Neve, LLM, Neve Tax Consultants, The Netherlands (01/07/2012)

Part I of this article appeared in the IFC Review 2010[1]. In the paper for this year’s edition of the Review, I will focus on the developments since the summer of 2009.

The good governance package from the European Commission consists of initiatives to strengthen governance in the areas of tax havens, uncooperative jurisdictions and aggressive tax planning.  Good governance in these areas  has been identified by the Commission as policy objective for the commission work programme 2012 [COM(2011)777].The common themes of the initiatives is more cooperation, more administrative assistance, more digital exchange of information and increased efforts to combat tax fraud and tax evasion.


Sarkozy and his 11 ‘Paradis Fiscaux’

In his press conference at the G20 summit in Cannes on 4 November 2011, France’s President Sarkozy, mentioned that the Global Forum had identified 11 tax havens[2]. However, the Global Forum on Transparency and Exchange of Information for Tax Purposes in its progress report for the G20, the Tax Transparency 2011: Report of Progress[3], concluded that nine jurisdictions (Antigua and Barbuda, Barbados, Brunei, Botswana, Panama, Seychelles, Trinidad and Tobago, Uruguay and Vanuatu) had not the critical elements in place necessary to achieve an effective exchange of information (at the time of their Phase 1 peer reviews) and that therefore they could not move to the Phase 2 peer review. Also three other countries (British Virgin Islands, Turks & Caicos Islands and San Marino) were found not to have the elements in place, but had been assessed in supplemental reports and could move to Phase 2. In order to arrive at 11, Sarkozy must have counted Antigua and Barbuda and Turks and Caicos Islands as four countries. It must be stated, furthermore, that the Global Forum has not labelled the nine countries as non-cooperative, the report identifies deficiencies that must be addressed before the peer review process for Phase 2 can be launched. Conclusions can only be drawn once the whole process is completed, and not at an interim during a G20 meeting.


Commission Work Programme 2012

The European Commission issued the Commission Work Programme for 2012 on 15 November 2011. The work programme consists of two volumes: Vol 1 citing the initiatives and  Vol 2 with the forthcoming initiatives in the format of roadmaps.

Initiative 120 on Annex I deals with good governance in relation to tax havens. According to the Commission it is tax evasion that threatens government revenues in all Member States; it skews the competitive environment unfairly against a large majority of citizens and businesses that play by the rules. Therefore a ‘reinforced strategy’ will be proposed to help Member States tackle ‘tax havens’ in order to help stem the potential losses to public coffers. It is no longer ‘transparency’ that is bearing the brunt of the Commission’s attention, but the focus is now on aggressive financial and tax jurisdictions and aggressive tax planning. In the roadmap it appears that non-cooperative jurisdictions may be relevant for a number of reasons beyond a purely tax issue, with issues such as financial malpractice and the financial crisis as elements for the use of non-regulated financial instruments and structures. The policy is aimed at affecting in particular jurisdictions which do not subscribe to EU or international standards in tax governance.


The International Standards in Tax Governance.

Good governance in tax focuses on three main principles: transparency, exchange of information and fair tax competition. The Commission believes that the Union as a whole can better achieve these objectives because of the global dimension of tax fraud and avoidance (justification on grounds of subsidiarity). Through coordinated action the Commission of the EU can add leverage towards non-cooperative jurisdictions.

But the fact is that at the moment no European jurisdictions are labelled as ‘non-cooperative’. In May 2009 the last three jurisdictions (Andorra, Liechtenstein and Monaco) were removed from the list of non-cooperative jurisdictions.  All jurisdictions have committed to the OECD standard of EOI. The peer reviews undertaken by the Global Forum on Transparency and Exchange of Information are still underway, with most of the Phase 1 reviews (elements in place) having been concluded. I refer to the website of the Global Forum for further information on the schedule of reviews.


Taxation and Good Governance

In April 2009 the Commission issued a Communication Promoting  Good Governance in Tax Matters [COM(2009)201][4]  building on its previous Communication on Preventing and Combating Financial and Corporate Malpractice [COM92004)611][5]. The 2009 Communication was discussed in my 2010 IFC Review article.

Good governance in the tax area is defined as including the principles of transparency, exchange of information and fair tax competition. Erosion of the tax base because of open borders is a main concern, because it can make it more difficult to raise an adequate level of revenue to finance public expenditure. In order to promote good governance Member States have agreed a number of measures in the tax field:

a.  Administrative cooperation, including information exchange: the Mutual Assistance Directive 77/799/EEC, the Directive on recovery of tax claims 2008/55/EC and the Savings Tax Directive 2003/48/EC.

b.  Harmful tax competition will be tackled in a Code of Conduct for Business Taxation and is defined as measures which affect or may affect in a significant way the location of business activity in the Community and which measures provide for a significantly lower level of taxation than those that generally apply in the Members State concerned.

c.  State Aids. EU state aid policy has contributed to the removal of distortions of competition resulting from specific business tax regimes introduced by individual Member States.

d.  Transparency. The tax initiatives are complemented by the existence of company laws and rules that ensure corporate and financial transparency.


Ongoing actions of EU

Directed by ECOFIN and the European Council the EU will continue to fight against illicit financial risks arising from non-cooperative jurisdictions and to fight against tax havens. A number of measures have been taken by EU in different areas to ensure that third countries adhere to good governance principles in the tax arena or to related principles.

a.  Savings Tax- The savings tax directive 2003/48/EC is under re-construction[6]. The original directive applied to a number of third countries (Switzerland, Andorra, Liechtenstein, San Marino, Monaco) and dependent and associated territories of Member States. The Commission has explored possibilities to conclude agreements with Singapore, Hong Kong and Macao, but an agreement has not yet been reached. The proposal of the Commission [COM(2008)727] for the amendment of the savings directive has not yet been accepted by the European Council. We expected a decision on the new  directive in the Council meeting of October  2011, but it is not even mentioned in the summary of that meeting. The new directive will extend the definition of interest and tackle all intermediate structures.

b.  Mutual Assistance Directive 77/799/EEC has been replaced by Administrative Assistance Directive 2011/16/EU of 15 February 2011. The main points of interest here are the increased automatic exchange of information and the exchange of banking information on request. The threshold for the information to be exchanged is ‘foreseeable relevant’. Its scope is extended to include, besides the direct taxes, all indirect taxes not presently covered by other Union legislation. The personal scope now includes trusts, foundations and all other legal and natural persons in the Union. The directive provides for increased administrative cooperation, which remains the central theme of many of the Union’s initiatives. The directive provides for automatic exchange of information on income from employment, director’s fees, life insurance products, pensions and ownership of and income from immovable property. The directive must become effective on 1 Jan 2013 and for the automatic exchange 1 Jan 2015.

c.  The Recovery Directive 2008/55/EC has been replaced by Directive 2010/24/EU of 16 March 2010. Its scope deals with all taxes and duties levied within the area of the Union. It facilitates the information exchange and the handling of documents. The directive is effective from 20 April 2010.

d.  Anti-fraud agreement with Liechtenstein[7]. Accepted is an Amended Proposal for a Council Decision on the conclusion, on behalf of the European Union, of the Cooperation Agreement between the European Union and its Member States, of the one part, and the Principality of Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests and to ensure exchange of information on tax matters. The matter was discussed in Council Meeting of 14/02/2011, but no decisions were taken.

e.  Agreement with Switzerland. The mandate to the Commission to negotiate a wide agreement is still not approved in the Council.

f.   Anti-fraud agreement with Andorra, Monaco and San Marino. Luxembourg and Austria are still opposing the mandate, because a successful conclusion of the negotiations would result in an ending of the transitional period that Austria and Luxembourg have negotiated under the Savings Directive. The consequence would be that the automatic exchange of information under the Savings Tax Directive would also apply to Austria and Luxembourg with movements of capital to other locations as a result.


FISCUS Programme for Taxation and Customs 2014-2020

FISCUS[8] will merge the current two programmes for taxation and customs into one and will support cooperation between the customs and tax authorities and other parties through networking and knowledge-sharing and by funding state of the art IT infrastructure and systems. It has been allocated a budget of €777.6 million for the seven years 2014-2020. The aim of the programme is to improve the ability of Member States to collect revenue and fight fraud by improving cooperation and coordination in taxation policies. Among the specific objectives of the programme the Commission outlines, among other objectives: tackling fraud and tax evasion.


Euro Plus Pact

In order to encourage better coordination between the national economies of the euro countries, France and Germany introduced on 4 February 2011 a Competitiveness Pact. The permanent chair of the European Council was asked to elaborate on the plan together with the European Commission.  At the meeting of the European Council of 11 March 2011 the pact was approved under the working title ‘Europact’. After the meeting of the European Council of 24/25 March 2011 non-euro countries such as Denmark, Poland, Latvia, Lithuania, Bulgaria and Romania also joined the pact, which was then labelled the ‘Euro Plus Pact’.

The Finance Ministers of the Member States participating in the Euro Plus Pact endorsed a report[9]  in the ECOFIN meeting of 30 November 2011 and agreed to forward the report to the European Council in the meeting of 9 December 2011[10].  The Euro Plus Pact is intended to strengthen economic policy coordination between Member States with the aim of improving competitiveness and enabling a greater degree of convergence. It was concluded in March 2011 by 23 of the 27 Member States (including all 17 countries of the euro area).

The pact includes a specific section on the coordination of tax policies. The European Council asked the Finance Ministers to report back in December on progress made. The report identifies the following issues to be addressed in the dialogue: (i)avoidance of harmful practices, (ii) fight against fraud and tax evasion, (iii) exchange of best practices and (iv) international coordination. The tax policy will be coordinated by the Council’s high-level working group on tax issues.

The European Council stressed that direct taxation remains a national competence. As part of the Pact a proposal for a consolidated common corporate tax base was introduced, which is seen by many as a means of unifying tax rates.


[1] See Part I of the article:



[4] Pressrelease IP/09/650

[5] Pressrelease IP/04/1164

[6] See institutional file 2008/0215 (CNS)

[7] COM(2009)648 final/3, Institutional file 2008/0234 (NLE)

[8] COM (2011)706, 9 November 2011.

[9] Report on tax policy coordination.

[10] See press release (Presse 456) 3129th Council meeting Economic and Financial Affairs, 30 november 2011, 17683/11,page 23 on  Euro Pact Plus. See also PRESSE 461, 17800/11