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1st Jul 2022

'Bank secrecy to die' after Austria and Luxembourg back EU law

  • Luxembourg's banking and financial industry has more than €3 trillion in assets (Photo: Cesar Poyatos)

Austria and Luxembourg at a summit on Thursday (20 March) in Brussels agreed to back EU plans to increase transparency in tax reporting.

"We confirmed today that this is the course we want to follow," Luxembourg Prime Minister Xavier Bettel said.

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The two countries had delayed endorsing EU reforms on the tax savings directive over the past six years of negotiations.

The political agreement means the updated directive is set to be adopted next Monday, before it is transposed into national law over the next two years.

EU Council chief Herman Van Rompuy in a statement said the agreement “is indispensable for enabling the member states to better clamp down on tax fraud and tax evasion.”

He noted Europe is now committed to the new single global standard for automatic exchange of tax information.

"All member states are firmly on board … Banking secrecy is set to die,” he said.

Additional pressure to back the EU law was piled on the two countries after G20 finance ministers in February called for a global standard in 2015.

The US Fair and Accurate Credit Transactions Act (Facta), a unilateral decision that makes banks operating in the US provide information on savings, also played a role.

For her part, Catherine Olier, a tax expert at British charity Oxfam, said Austria and Luxembourg started moving toward an EU agreement after the US passed Facta.

“This unilateral decision forced Austrian banks and Luxembourgish banks to provide information,” Olier told this website.

The European Commission says the reformed directive is needed to better identify and chase up tax evaders and to close loopholes on pensions and investment funds.

Member states, under current rules, do not share data on interest earned from financial products linked to investment funds, pensions, trusts or foundations.

The new legislation aims to tackle cross-border tax evasion by creating an information exchange system for governments to help identify individuals that receive savings income in a member state other than their own.

Twenty-six member states currently apply the old version of the EU law on automatic exchange of information.

Austria and Luxembourg do not, after being granted a transitional period, in which they applied a withholding tax on interest payments made on savings.

Both countries had also refused to sign up unless non-EU banking countries like Switzerland and Liechtenstein agree to apply the standard.

EU taxation commissioner Algirdas Semeta earlier this month said the countries are now ready to work towards alignment with the EU on the issue.

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