EU proposes extending automatic tax information exchange to dividends and capital gains

It has proposed extending existing information exchange laws (10-page / 70KB PDF) to cover the account balances and all types of financial income, including dividends and capital gains, of non-residents. This would give the EU "the most comprehensive system of automatic information exchange in the world" and boost the fight against tax evasion, the Commission said in a statement.

"With today's proposal, member states will be better equipped to assess and collect the taxes they are due, while the EU will be well positioned to push for higher standards of tax good governance globally," said Tax Commissioner Algirdas Šemeta. "It will be another powerful weapon in our arsenal to lead a strong attack against tax evasion."

EU laws already permit the automatic exchange of certain information between member states. The EU Savings Tax Directive, which has been in place since 2005, ensures that member states collect data on the savings of non-resident individuals and automatically provide this to the tax authorities in their country of residence. Member states automatically transmit this data through the CCN system, which is a secure IT network that complies with EU data protection rules.

The Commission has proposed revising the Administrative Cooperation Directive, which comes into force on 1 January 2015, to include a wider range of information from that date. The directive already provides for the automatic exchange of information in relation to employment, directors' fees, life insurance, pensions and property.

The new provisions are broader than those in relation to the five types of income already covered by the directive, which provides that only information that is "available" should be exchanged automatically. Exchange of information in the new categories will be mandatory, as member states will be making that information available to the US under the Foreign Accounts Tax Compliance Act (FATCA). The "most favoured nation" principle states that member states must provide EU countries with the same level of information as they provide to third countries.

In April, the UK, France, Germany, Italy and Spain agreed to a pilot initiative in which they would automatically exchange the same information between themselves as with the US under FATCA. Since then 12 other member states had indicated their wish to join the agreement, according to the Commission. It said in a statement that an EU-wide proposal would "avoid a patchwork of different bilateral agreements", preventing loopholes and additional administrative costs.

Tax expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com, said that the EU could be expected to press for a similar level of information exchange globally, "in time".

"There measures will force taxpayers to declare their income and gains, if they have not done so," he said. "Those who may be tempted to move their funds to other jurisdictions need to realise that they cannot eradicate the footprint they have already made. The best solution is to notify HM Revenue and Customs (HMRC) before they make contact, to ensure that a controlled and managed disclosure is made."

In May, the UK Government announced that all of its overseas territories with "significant financial centres" had agreed to join the information exchange pilot. However, Reuters reported that Bermuda Premier Craig Cannonier was "not ready to commit" without "going over it with a fine-tooth comb". Representatives of the British Overseas Territories are due in London this weekend to discuss the agreement ahead of the UK's hosting of the annual G8 summit, according to Reuters.