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Dealing a severe blow at the eleventh hour, although not entirely unexpectedly, Austria and Luxembourg have once again blocked plans for a comprehensive automatic exchange of tax information within the European Union (EU).
During the latest ECOFIN meeting in Brussels, Austria and Luxembourg refused to provide their backing to plans to revise and to extend the EU Savings Tax Directive, to ensure that information is exchanged automatically for all types of income in the future.
Clearly preferring a solution at OECD level, Austria and Luxembourg emphasized that they will only agree to tougher provisions, once negotiations on equivalent measures have been concluded between the EU and third countries, namely Switzerland, Liechtenstein, Andorra, Monaco, and San Marino.
While many EU Finance Ministers vented their disapproval of the joint position, their ire seems somewhat staged. Luxembourg's incoming Government made clear its stance as soon as an alliance was in place, and intentionally ahead of the Brussels gathering.
Indeed, to counter the criticism, and to defend its position, Luxembourg's new Government issued a follow-up communiqué, in which it underlines beyond doubt the Grand Duchy's commitment to moving forward towards an automatic exchange of information.
Firstly, the Government stressed that for the fiscal year 2015, Luxembourg will apply automatic exchange of information on interest payments within the EU. Further, it alluded to the fact that on December 3, 2013, Luxembourg signed the initiative recently launched by the G5 countries supporting the development within the OECD of the automatic exchange of information between tax authorities as a single global standard. Finally, the Government pointed out that draft legislation, authorizing the ratification of the OECD Convention on Mutual Administrative Assistance in Tax Matters, is to be sent to parliament by the end of the year.
Regarding plans to extend the scope of the EU Savings Directive, the Government regretted that the negotiations conducted with the third countries in question have not "yielded results which would suffice to meet the circumstances defined by the European Council for the adoption of the revised agreement."
Concluding, the Government underlined the importance of moving forward in these negotiations, to ensure that the same standard is applied by all major financial centers in order to avoid capital flight out of the EU, and in turn protecting its capacity to invest in order to bolster the economy and growth, and to guarantee a move that is in line with the OECD, in order to ensure the creation and implementation of an international standard.
In spite of these comments, EU Tax Commissioner Algirdas Šemeta has recently warned that it is "incomprehensible," and "not just disappointing" that an agreement on the Savings Directive could not be reached. Šemeta stressed that this is "out of synch with the mood and resolutions at both EU and international level."
Underscoring that the environment in which member states are now discussing the issue is "very, very different, even to a year ago," Šemeta noted that he would have expected member states' positions to have evolved, "to meet the reality in which we are now working."
He said: "At this stage, the clock is ticking and excuses are running out. In May, EU leaders called strongly and unconditionally for the EU Savings Directive to be agreed before the end of 2013."
Given that this objective was not achieved by Finance Ministers, it will have to be pursued by the leaders themselves when they meet next week, Šemeta ended.
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