A European law compelling banks and financial institutions to reveal the financial details of their customers living in other European countries is a step closer after leaders said they would crackdown on tax dodgers.
Using the controversial American Foreign Account Tax Compliance Act (FATCA) as a template, the European Union says they broadly support efforts to bring about a global tax information exchange system.
Such a move would make it almost impossible for rich people and international firms to hide their financial assets.
However, the planned European FATCA would see the US tax authorities handing over information about its citizens and businesses, as well as foreign clients, to governments overseas which is an increasingly touchy subject in Washington.
The issue is set to be discussed at the upcoming G8 meeting of the world’s richest eight countries where President Barack Obama will come under pressure to give his support.
Bigger tax take
Pierre Moscovici, France’s finance minister, has said he supports an EU law which would help create a global system and he is supported by the German government.
The move follows an agreement between the UK, France, Germany, Spain and Italy to share tax information between their relevant tax authorities.
After the agreement was announced, 11 other EU members signalled their willingness to sign up with Austria being the only country to object to the moves.
Austria’s stance was previously supported by Luxembourg but they have now accepted the need for the law – though Austria’s objection can still stop the proposed legislation in its tracks.
One of the biggest drivers for such a law is that most governments see it as a popular way to increase their tax takes from those perceived to be dodging taxes.
Chancellor George Osborne says the time is ripe for a European FATCA in a bid to create tax transparency.
He added: “We now have real momentum towards tackling offshore tax evasion and we are seeing a step-change from the international community to making this a reality as soon as possible.”
As many banks and financial institutions around the world are already discovering, the cost of compliance with America’s FATCA is huge – and now fears are being raised in America about the costs of the European FATCA lumping them with a big compliance bill too.
The Germans and French have asked the EU to come up with proposals for the law ‘very quickly’ and will look to build on the current laws requiring information on the interest being paid on deposits to be widened.
The reward for a successful European FATCA being implemented could see £850 billion in unpaid taxes being recovered – which is equal in size to Spain’s economy