Tuesday

31st Jan 2023

Analysis

Why is Austria so keen on bank secrecy?

  • Raiffeisen Bank in Bucharest: Austrian banks were the first to expand to eastern Europe after the fall of Communism (Photo: Valentina Pop)

Tax evasion has risen to prominence on the EU agenda following the money laundering discussions surrounding Cyprus' bailout and the recent revelations concerning Europeans hiding their wealth in complex offshore schemes.

An EU summit will be devoted to the issue in May. According to a senior EU official, the summit is aimed at "convincing" Austria to drop its veto on an EU bill obliging banks and governments to exchange data on their citizens' bank accounts abroad.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

After a weekend of talks in Dublin among finance ministers, Austria is the last country still opposing the scheme. Luxembourg, its long-time ally, recently caved in to pressure and pledged to join the automatic data exchange from 2015.

Finance minister Maria Fekter on Monday (15 April) said she can "report a success" after having vowed to "fight like a lion" to preserve Austria's bank secrecy.

She called the EU exchange initiative a "data cemetery" that will over-burden businesses and government agencies, while yielding no cent in taxes.

Austrian Prime Minister Werner Faymann has a more nuanced stance, but still believes that "grandmothers" in Austria should not be subject to increased EU scrutiny.

But why is Austria - which unlike Luxembourg or Switzerland is not a tax haven, charging 25 percent on capital gains - so keen on keeping the identity of bank customers under wraps?

"Bank secrecy is a privacy matter. Austrian people lost their money to inflation two times in recent history. So they are very suspicious about the information exchange between government and the financial system, especially after many banks were nationalised," Karl Aiginger, head of the Austrian Institute for Economic Studies, told this website.

While "populist" politicians make use of the privacy argument to gain public support, another more lucrative reason underpins Austria's veto: "It's a history of capital shortage and large firms in Austria."

Aiginger explained that for a long time, neighbouring Switzerland, Liechtenstein and Luxembourg attracted capital from all over the world, including Austria, leaving Austrian banks and businesses with a capital shortage. "If firms were looking for investment or ownership change there was always a shortage of investors," the thinktank director said.

This changed over the past 20 years, with the opening of eastern Europe. Austrian banks and firms were the first to invest there. The tax on foreign capital in Austria was reduced to 25 percent, the same as the corporate tax rate - which is not the lowest, but still below the European average.

In order to attract more foreign capital, the Austrian state allowed the creation of so-called foundations and trusts, where money can be "parked" at lower tax rates. "Capital funds managed in Austria have a higher probability to be invested in Austrian firms or being invested on the Austrian stock market," Aiginger explains.

"In principle none of this will change if Austria takes part in the bank data exchange, because foundations will not be part of it. It is just the fear of change, with the history of capital shortage in mind," Aiginger said.

The Austrian government will in the end cave in to pressure from its European peers, predicts Christian Keuschnigg, head of the Institute for Advanced Studies, another Vienna-based thinktank.

"Pressure is high, it's of course linked to Cyprus and its oversized banking sector with lots of money from Russia and the UK. Then the Offshore Leaks [the information recently exposed by Washington-based investigative journalists] showing a lot more financial revenues could be made available at home if they were not hidden in these tax havens," he said.

However, even with more scrutiny provided by the new data exchange, "it won't solve everything", as all those "huge amounts of data will have to be processed, plus there are different languages," Keuschnigg points out.

Changes to the banking secrecy principle - which is enshrined in the Austrian constitution - would require a two-thirds majority in the parliament. With elections coming up in September, it is unlikely that a bill will pass before then.

Austria attacks UK, as EU finance talks get ugly

Austria has accused the UK of being a haven for money launderers ahead of an EU meeting in Dublin, with Cyprus, Ireland, Portugal and Slovenia's (potential) bailout needs also on the agenda.

French leader promises anti-tax-cheat crusade

French leader Hollande has promised to "eradicate" tax havens in the EU and in the wider world, after his approval rating fell to 26 percent following a tax scandal.

Top five EU states push for tax transparency

France, Germany, Italy, Spain and the UK have agreed new measures to fight tax fraud, putting pressure on Austria and Luxembourg to stop blocking an EU-level law.

Opinion

More money, more problems in EU answer to US green subsidies

Industrial energy-intense sectors, outside Germany and France, will not move to the US. They will go bust, as they cannot compete in a fragmented single market. So to save industry in two member states, we will kill the rest?

Latest News

  1. Democracy — is it in crisis or renaissance?
  2. EU lobby register still riddled with errors
  3. Polish backpedal on windfarms put EU funds at risk
  4. More money, more problems in EU answer to US green subsidies
  5. Study: EU electricity transition sped into high gear in 2022
  6. Russia and China weaponised pandemic to sow distrust, MEPs hear
  7. Frontex to spend €100m on returning migrants this year
  8. EU aims to simplify tax credits to counteract US green subsidies

Stakeholders' Highlights

  1. Party of the European LeftJOB ALERT - Seeking a Communications Manager (FT) for our Brussels office!
  2. European Parliamentary Forum for Sexual & Reproductive Rights (EPF)Launch of the EPF Contraception Policy Atlas Europe 2023. 8th February. Register now.
  3. Europan Patent OfficeHydrogen patents for a clean energy future: A global trend analysis of innovation along hydrogen value chains
  4. Forum EuropeConnecting the World from the Skies calls for global cooperation in NTN rollout
  5. EFBWWCouncil issues disappointing position ignoring the threats posed by asbestos
  6. Nordic Council of MinistersLarge Nordic youth delegation at COP15 biodiversity summit in Montreal

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  4. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  5. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos
  6. European Committee of the RegionsRe-Watch EURegions Week 2022

Join EUobserver

Support quality EU news

Join us