EU leaders have have taken a major step to curb tax cheats, pledging to do more to stop companies actively avoiding taxes. The bloc’s latest actions pave the way to ending banking secrecy among its 27 members.
Leaders from the European Union agreed at a meeting in Brussels Wednesday to set up an automatic exchange of bank information, a move hailed by German Chancellor Angela Merkel as a “breakthrough.”
Austria and Luxembourg notably joined in calls for the increased sharing of banking information. The two countries have long been opposed to ending banking secrecy in their respective countries, blocking such reforms in previous meetings in the fear that it would harm their attractiveness as banking destinations.
On Wednesday Austria and Luxembourg finally gave in to the plan after being given until the end of the year, alllowing them more time for negotiations on ending banking secrecy in non-EU countries like Switzerland, Monaco and Liechtenstein.
The high cost of tax evasion
Tax fraud and evasion costs the EU an estimated 1 trillion euros ($1.3 trillion) annually. EU President Herman Van Rompuy said that in the wake of Europe’s financial crisis, curtailing such practices was especially important.
“At a time of social pressure and social tension, fighting [tax evasion and tax fraud] is a matter of fairness and a matter of credibility,” Van Rompuy said. “There is a momentum not comparable with other moments in the past because we are in an economic crisis.”
Leaders at the meeting did not give an exact starting time for the automatic exchange of banking information, but nonetheless hailed the 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.
Chancellor Merkel said the move was important progress.
“To be able to take such steps … is something that we have aspired to for many years,” she said.
Italian Prime Minister Enrico Letter called the move “a major push forward” in fighting tax evasion.
Not far enough?
The European Parliament and some non-governmental organizations, however, said the EU did not go as far as they would have liked. For instance, the bloc did not create a blacklist of tax havens that would face punishment.
“Once again, we witness heads of state and government paying lip service to the fight against tax evasion, fraud and havens – but when given the opportunity to agree a more efficient framework, inaction wins over progress,” said Hannes Swoboda, leader of the parliament’s Socialist faction.
Anti-poverty organization Oxfam said the leaders failed to represent the interests “of the majority of citizens around the world who would benefit from an EU clampdown on tax dodging,” but added that what had been achieved thus far was nonetheless “encouraging.”
During the meeting the leaders discussed how to prevent big companies from taking advantage of loopholes that allow them to distribute their profits worldwide and minimize their payments.
The US Senate on Tuesday questioned Apple CEO Tim Cook over allegations the company’s Irish subsidiaries had allowed it to avoid paying billions in US taxes.
In a final statement, the leaders vowed to make strides on ending “aggressive tax planning and profit sharing” by companies, as well as strengthening business taxation guidelines.
“We will work on having businesses pushed towards increasingly paying taxes in the places they’re located,” Merkel said.
Also on Wednesday, EU leaders discussed energy policy and how high prices in Europe compared with other regions could be hurting industry competitiveness. However, no major decisions were made or new measures proposed.