The European Union’s leaders took a major step in tackling tax-dodgers Wednesday by pushing to end bank secrecy across the bloc’s 27 members by the end of the year.
German Chancellor Angela Merkel hailed the agreement to set up an automatic exchange of bank information among the EUs tax authorities — which has been long resisted by Austria and Luxembourg — as a «breakthrough».
European officials say tax fraud and evasion costs the 27-nation bloc’s governments an estimated 1 trillion euros ($1.3 trillion) a year at a time when much of the region is in recession and governments are forced to tighten their budgets.
One tactic used by individuals to get out of paying tax on income and investments is to hide money in another country’s bank. By sharing information on account-holders’ interest and other capital gains, the banks’ data will help authorities track down tax cheats.
Luxembourg and Austria, the two EU countries that prize themselves on their banking secrecy, have long opposed the initiative, blocking it at previous meetings. But the two governments gave in Wednesday after making sure the system’s introduction would be delayed until the end of the year to grant more time for negotiations on abandoning bank secrecy with non-EU countries such as Switzerland, Monaco and Liechtenstein.
The leaders didn’t give an exact starting time for the automatic information exchange, but cheered the political agreement.
“Those who thought they could escape taxes by picking tax havens, they have to realize today that the days of impunity are over,» said French President Francois Hollande.
EU Council President Herman Van Rompuy, who chairs the leaders’ meetings, voiced confidence that a united EU — the world’s largest economy — has the clout to push for better tax practices around the world.
“Tax evasion is something no country can solve on its own,» said Van Rompuy.
“There is a momentum not comparable with other moments in the past because we are in an economic crisis, an unprecedented European crisis.”
The leaders also discussed how to curb large companies’ aggressive tax planning, which allows them to take advantage of loopholes to redistribute their profits globally and minimize their payments.
In the meeting’s concluding statement, the EU called for rapid progress on the measures against «aggressive tax planning and profit shifting» and vowed to push ahead with closing legal loopholes.
The investigation of the tax tactics of multinationals is being carried out on a global scale. On Tuesday, members of a U.S. Senate subcommittee grilled Apple CEO Tim Cook over allegations that the company’s Irish subsidiaries help it avoid billions in U.S. taxes.
Cook insisted that the company’s overseas operations have nothing to do with reducing Apples U.S. taxes.
Irish Prime Minister Enda Kenny on Wednesday denied Ireland was cutting special deals with multinationals. «Ireland has been one of the frontrunners, and will be, in regard to building a new international consensus,» he said.
The issue of tax overshadowed the EU summit’s supposed main topic, guaranteeing a steady supply of energy while combatting high power prices.
EU authorities are worried that Europes industry is losing its competitiveness because energy prices there are significantly higher compared with other advanced economies such as the U.S..
“Soon Europe could be the only continent to still depend on imported energy,» van Rompuy warned. «Households feel the weight of high prices and the industry finds it hard to compete with foreign firms who pay half the price for electricity, like in the United States,» he added.
The leaders’ discussion on energy, however, was more about stock-taking; no major decisions on new measures were taken, not least because energy policies are still mainly a domain of the national governments.