TAXATION : FIVE BIG MEMBER STATES WANT EUROPEAN FATCA.

Now that Luxembourg and Austria have finally acknowledged that their bank secrecy has no future, France, Germany, the UK, Italy and Spain are looking further ahead: they wish to duplicate the US FATCA (Foreign Account Tax Compliance Act) legislation in the European Union.

French Finance Minister Pierre Moscovici announced this intention on 7 April, after his country's Budget Minister, Jerome Cahuzac, was forced to step down over a tax evasion scandal and in the wake of the offshore leaks' affair: France and Germany would launch a joint crusade against fraudsters, he said (see Europolitics 4621 and 4622).

The United Kingdom, Italy and Spain have joined their cause. In a joint letter(1) dated 9 April and addressed to Taxation Commissioner Algirdas Semeta, they agree to promote internationally the emergence of a "global system of automatic information exchange" between tax administrations, based on the model of the US FATCA. This should become the "new international standard".

Adopted in 2010, FATCA will require financial institutions (banks, investment funds, trusts, insurance companies, etc) the world over to report, from 2014, to the US tax administration most transactions on accounts held by those considered "US persons" for tax purposes, regardless of their nationality. Those failing to comply will be subject to financial penalties.

All the EU member states are negotiating with Washington and the UK, Denmark and Ireland have already signed intergovernmental agreements on implementing FATCA.

Paris, Berlin, London, Rome and Madrid announced that they had agreed, as a first step, "to work on a pilot multilateral exchange facility" (a European FATCA) that would expand automatic information exchange between these states beyond the regulatory framework currently in force in the EU.

Indeed, the EU directive on savings taxation, which entered into force in 2005 and is being renegotiated, concerns only interest (and similar) earnings by individuals. Luxembourg and Austria also have a "transitional period" enabling them to use anonymous withholding at the source rather than automatic information exchange, thus preserving bank secrecy.

The directive on administrative assistance in matters of taxation, which came into force on 1 January 2013, requires EU member states to exchange information, but only "available" information, from 2015 and for certain categories of income and capital: earned income, directors' fees, life insurance products, pensions...