Archive for March, 2012

Germany: urgent phone action on Swiss tax deal

This blog is copied from the Tax Justice Network Blog, with permission:

From a statement by the German campaigning group Campact, very loosely translated and with our own interpretations added:

A moment of danger has arrived for transparency in Europe. Several German states governed by the SPD and the Green party are threatening to reverse their previous opposition to a scandalous tax amnesty agreement with Switzerland, which provides impunity (and numerous escape loopholes) for wealthy criminal tax evaders. We have written about often this before. If this agreement goes ahead, it will have the political effect of undermining many years of work to build transparency in Europe through the Savings Tax Directive and its forthcoming amendments.

The state governors will meet tonight to discuss whether or not to approve the deal, and the governors of Berlin, Hamburg, North Rhine-Westphalia, Rhineland-Palatinate and Baden-Wuerttemberg have been giving worrying signals that they might capitulate on this deal. They have been promised large tax revenues from the Swiss deal – and those recalcitrant states have recently been offered a higher proportion of the total revenues, as bait to tempt them into accepting this squalid deal. (We have demonstrated beyond doubt that revenues from the deal will be only a fraction of what has been publicly promised, however.) Only two or three countries need to agree in order for the pro-Swiss Finance Minister Wolfgang Schäuble to get a majority in the Bundesrat to push this Swiss secrecy steamroller forwards.

So today we want to mobilize all forces once again. Please get involved: Call right now at the Treasury or the State in one of the countries and ask the end for the tax treaties.

Further details about how to get involved, in German, here and here.

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EC queries UK-Swiss tax deal

Switzerland announced yesterday that it had signed a protocol amending last October’s loophole-riddled “Rubik” tax deal with the United Kingdom (Germany has an almost identical deal with Switzerland, which I have commented on before; I understand that the German domestic opposition to the deal is much stiffer, and no deal is imminent.) The Swiss government said that with the new protocol,

The concerns of the EU Commission regarding compatibility with EU law have been removed.

The Financial Times analysed it this way:

“Officials signed a protocol in Brussels that will modify the deal so it is compatible with existing EU laws on evasion.”

I asked the European Commission if this is true, and got this reply:

“The Swiss press release is its own interpretation of the situation – it’s not for the Swiss government to profess the Commission’s position.
. . .
For the moment we don’t have a reaction, because we were only informed about the revised agreement being signed at midday today. So we’ll have to see the exact wording first.
. . .
We’d hope though that it would reflect the good discussions that the Commission has had with UK over the past months, from which we believe there was a common understanding on what needs to be changed in these agreements to make them compatible with EU law. Commissioner Semeta was extremely clear in his letter to Member States on 5 March as on the parameters that Member States must respect in such bilateral agreements with CH. He remains firm on that.”

And European Commission President José Manuel Durão Barroso said:

“On the tax question I want to tell you one thing – the Commission will never accept a bilateral agreement by a member state with a third party like Switzerland if it does not fully respect community law. So we will look at these agreements and we will make sure that community law is fully respected.”

(that was translated from the original: “Sur la question fiscale je veux vous dire une chose – la Commission n’acceptera jamais un accord bilatéral d’un Etat membre avec un pays tiers comme la Suisse, s’il n’est pas fait dans le plein respect du droit communautaire. Donc, nous allons regarder ces accords et nous allons nous assurer que le respect du droit communautaire est absolu.”

So it is fair to say that this UK agreement is not in the clear yet. But it might be: let us see what the European Commission has to say when they have had a proper look at it.

What is clear is that although there is a new provision for inheritance taxes, which on the face of it is an improvement, the outrageous and often explicit loopholes that were contained in the original deal remain largely intact. For instance, the new protocol, in Article 2h), says:

“An individual resident in the United Kingdom is not considered to be a rele- vant person with regard to assets of associations of persons, asset structures, trusts or foundations, if it is not possible to ascertain the beneficial owner- ship of such assets, e.g. due to the discretionary nature of the arrangement.”

What that means, in plain English, is that if a UK taxpayer puts their assets in a discretionary trust, for example, then they can keep their assets in a Swiss bank and dodge the Rubik deal entirely: still keeping your assets secret, while paying no tax on it (for more details on how this works, and for a fuller look at all the loopholes, see Section 3.1 here). This clause is so explicit that it is equivalent to planting a flag in the protocol and saying ‘evade me here.’ (And, for the avoidance of doubt, it applies to the new inheritance tax provision too.) Tax advisers up and down the country will be salivating at the prospect of setting up the new structures to help their wealthy clients evade tax this way.

This is a sweetheart deal, cooked up between Swiss bankers and Dave Hartnett, the disgraced (and now retiring) head of UK Customs and Revenue (HMRC.) This poisonous deal was presented to the UK public immediately ahead of budget day, which means it would get largely ignored by the country’s journalists. And the coverage has consequently been pretty patchy and unquestioning.



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Germany sides with the tax havens in transparency fight

Germany has long been a champion of financial transparency in Europe, having pushed hard for the EU Savings Tax Directive, a co-operative arrangement since 2005 where participating jurisdictions routinely exchange information about the income and holdings of each other’s citizens, so that they may be taxed properly. Germany has also strongly supported current moves to strengthen the directive, which is currently full of loopholes.

The transparency project has faced major political difficulties. A group of tax haven countries, led by Switzerland and supported inside the EU by the tax havens of Austria and Luxembourg, have been involved in a political chess game, to sabotage the progress of the powerful Amendments to the EU Savings Tax Directive (EUSTD) through the European legislative process.

For a long time, Germany had been a stalwart supporter for those determined to fight for financial transparency, and to fight against the tax havens.

Until now.

As my last post noted, Germany appears decisively to have switched sides, and now has placed itself firmly on the side of the tax havens. As Europolitics reports, confirming my earlier post:

“An unnatural alliance has been made at the Council to block, once again, any move forward in the dossier on the taxation of savings income. Germany has joined forces with Luxembourg and Austria.”

The key tool that is being used to sabotage the Amendments has been Switzerland’s bilateral “Rubik” deals with the UK and Germany, under which Switzerland is supposed to apply some withholding taxes on UK (criminal) German and UK taxpayers’ Swiss assets and income, while keeping their identities secret.

The original political aim of Rubik was to play a divide-and-rule game in Europe, weakening German and British resolve on pushing forwards the EUSTD Amendments, and providing Austria and Luxembourg with a pretext for blocking progress on those amendments: they would be able to claim that the Amendments are unfair because the Rubik bilateral deals give special treatment to Switzerland. Which they do. Germany, inexplicably, wants the EC to drop its objections to the deals.

Switzerland has also been thumbing its nose at the European Union over this issue. Last November, for instance, Swiss Finance Minister Eveline Widmer-Schlumpf snubbed EU Tax Commissioner Algirdas Semeta by cancelling a meeting with him on this issue, at the last minute.

The European Commission has, quite rightly, stamped down hard on the Swiss “Rubik” deals. In a fierce March 5th letter to the Danish EU Presidency, Semeta warned strongly against the deals, warning that

 “Such agreements must not include any aspects which overlap with areas in which common action by the European Union has been taken or is envisaged.

Those words “or is envisaged” are particularly important: the deals must not cross the Amendments, even though these Amendments, which are a welcome threat to financial secrecy in Europe, have not yet been passed.

As my earlier post explained, the carve-out that the European Commission insists upon effectively renders the Rubik deals functionally worthless, and pointless except for one thing: as a potent political tool for sabotaging the amendments.

This is why it is so shocking that just at a moment when progress was about to be made – Britain and Germany being made to realise that their deals would have to be scrapped or rendered useless, and Austria and Luxembourg appearing to back down from blocking progress – Germany suddenly intervened to block progress. As Europolitics reports:

The Danish Presidency of the EU confirmed, on 7 March, during a meeting of the Committee of Permanent Representatives (Coreper), that the discussion on savings taxation has been withdrawn from the 13 March Ecofin Council. Copenhagen had hoped to reach a compromise on granting the European Commission a negotiating mandate with several countries, including Switzerland, but Germany has put a ‘reservation’ on this approach.

There are several theories circulating as to why Germany want to do this.

A first is that wealthy and powerful (criminal) German tax evaders have been able to apply enough influence to stop financial transparency being expanded in Europe, and have been able to influence the German Finance Ministry. The theory is not so very far-fetched: many were surprised to see Germany ranked in the top ten of the Tax Justice Network’s Financial Secrecy Index last year.

A second theory is that German Finance Minister Wolfgang Schäuble, who is known to be very pro-Swiss, wants to help Switzerland, for particular reasons of his own. Bizarrely, Germany seems particularly eager to help Swiss banks, as Europolitics continued:

“In particular, Berlin wants the guarantee that is has the right to “facilitate” the access of Swiss operators to its national market of financial services.”

A third possible reason is this: by trying to force the European Commission into accepting the deals, Schäuble will be able to avoid the humiliating experience of having to admit the truth: that the Rubik deals were a gigantic mistake from the beginning.

Ultimately, Schäuble’s motivations may stem from a combination of all three. In any case, amid all the financial and political turmoil in Europe, it marks another arena in which Germany appears to be taking a rather nationalistic path, disregarding the efforts of the rest of European member states, which stand to lose tens of billions of Euros in revenues if the tax haven sabotage is successful.

Schäuble appears to be gaining a source of perhaps unwitting support from the German media, which has so far largely (with the odd exception) failed to pick up on Germany’s decisive shift onto the side of the tax havens, and which appears to have greeted Semeta’s powerful letter on March 5th with silence.

Austria, meanwhile, appears to be taking as cynical position as it ever has. Andreas Schieder, Austria’s State Secretary of Finance, had this to say:

“We cannot wait until all the tax issues between the EU and Switzerland have been dealt with. They have had 20 years to do this, and this is certainly far too long for us.”

Which is interesting. What Schieder omitted to mention was that one of the main reasons for delay has been that Austria and Luxembourg have been blocking progress inside Europe!

In an open letter to Finance Ministers and EU Permanent Representatives on March 6th, the Tax Justice Network called Germany’s actions “unacceptable” and called on EU governments to “stand up against Germany’s position.”

Endnote 1: if any evidence is needed on just how very bad the original Rubik deals are, click here.

Endnote 2: a lot of media stories (such as this one) have falsely given the impression that because Germany and the UK have agreed to the Commission’s demands that they must renegotiate their Rubik deals, and that the sticking point has been the tax rate specified under the German deals, and that this effectively irons out the problems. That is false: the tax rate is a distraction. The changes that the EU Commission is referring to is “drop everything in Rubik that overlaps with the EUSD and its future amendments.” To repeat: if they do accept the European Commission’s demands, as is right (and as seems likely,) then the whole point of Rubik disappears.

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