€1 trillion fraud issue threatens our tax veto

The battle to recoup about €1 trillion lost annually through tax fraud could threaten the country’s veto on tax issues in the EU.

As just one or two countries now stand in the way of concluding agreements on exchange of bank information and on Vat fraud, EU finance ministers are demanding faster action.

Taxation Commissioner Algirdas Šemeta said the current system, where every country has to agree unanimously to tax legislation, slows down the process and makes change difficult.

“Discussions on the future of the EU treaty should involve the question of unanimity in tax. It should be one of the subjects of debate among member states,” he said.

Germany has said it wants a new EU treaty in 2015, to bring about changes in the structure of the union, especially on economic and political union. Britain is also pushing for a new treaty.

Mr Šemeta said “Sometimes it’s difficult to understand if there is one, two or three member states blocking a solution and the others have to wait until agreement is reached. It slows down the process, unfortunately, and needs lengthy negotiations and lots of compromises to reach agreement among the 27.”

Finance Minister Michael Noonan chaired the meeting in Dublin Castle where Mr Šemeta made his comments. When asked if it was time, due to tax evasion, to change the treaty to remove the veto, he said: “No, I don’t,” adding he had not heard anyone propose it.

Austria found itself under pressure to sign up to the automatic Exchange of Information from 2015, to agree to give details of foreigners’ bank accounts to other EU countries to ensure they are taxed. Luxembourg was holding out, but has now agreed to comply.

Austria’s finance minister, Maria Fekter, however, led a spirited defence of her position at the meeting, pointing to the hypocrisy of other countries who allowed offshore secretive banking in the form of trusts and other vehicles.

She said that Cyprus had been obliged to put in place a trust register and this was something every EU country should do, “including big islands” — referring to Britain and its tax havens such as the Isle of Man and the Cayman Islands.

Many of these offshore islands, facilitating anonymous trusts, were a paradise for money laundering she said, adding that it was unfair to put pressure on Cyprus and say nothing about others.

The Irish presidency is hoping to unblock the Savings Directive and the Vat fraud directive next month and this will unlock a whole series of tax fraud and tax evasion measures that are on the table.

Six countries came together to call for greater transparency and announced they will set up a pilot project among themselves. This was welcomed by Commissioner Šemeta but he said that if they all accepted the measures already on the table, it could all be achieved within a month.

However, he warned that even if all the measures were put in place, including getting the US and other countries globally to make similar moves, it would not automatically release the €1tn currently being lost to EU governments.

“We should not be naive that we would be able to collect the €1tn immediately if the legislation is adopted but it will be a strong incentive and a move towards it,” he said.

Among the measures being discussed is the closure of loopholes used by multinational companies to move money between jurisdictions, taking advantage of various tax regimes. This could see Ireland and the Netherlands having to change legislation.