The adoption comes after Luxembourg and Austria dropped objections to the proposal last week which they had held for more than five years. The European Commission will negotiate to secure stronger tax transparency agreements with Switzerland, Lichtenstein, Andorra, Monaco and San Marino.
The amendment applies to interest paid to individuals who are resident in an EU member state other than the one where the interest on their savings is paid, said a European Commission statement. It is designed to combat tax fraud and evasion across the EU, and is expected to be formally adopted by the European Parliament in April. Member states have until 2016 to transpose it into national law.
Announcing the agreement today, Algirdas Šemeta, commissioner responsible for taxation and customs union, statistics, audit and anti-fraud said: "This agreement is highly significant for many reasons. First, it means that one of our key tools for tax transparency in the EU will be considerably strengthened. Loopholes exploited by evaders will be closed. Second, it is politically symbolic. An important anti-evasion file has been unblocked, after years of deadlock. This is proof of the widespread acceptance that the days of bank secrecy and tax in transparency are over."
Today's development is a revision to the EU Savings Tax Directive which has been applicable since 1 July 2005. Member states were required to transpose this into national law. In November 2008 the Commission adopted an amending proposal to the Directive, designed to close existing loopholes and clamp down on tax evasion.
Luxembourg and Austria blocked the move because they feared that their financial sectors would be adversely affected, and that they would risk losing customers to jurisdictions with less transparency, reported the European Voice newspaper. Last year member states leaders asked the European Commission to negotiate similar rules with Switzerland, Lichtenstein, Andorra, Monaco and San Marino. Negotiations have progressed to a point where Luxembourg and Austria feel confident that they can drop their opposition, said the newspaper.
Welcoming the development Šemeta said: "I must also commend Austria and Luxembourg for their decision to move on the Savings Directive – which facilitated today's adoption. I know that this file is of enormous national significance for them, and I am glad that they are now reassured that their interests are protected and respected. I believe they were particularly encouraged by the report that I gave to Finance Ministers, on the progress we are making in negotiations for stronger tax agreements with our closest neighbours. Switzerland and the 4 other countries now accept that the automatic exchange of information must be at the core of their relations with the EU in taxation. This would have been inconceivable even a year ago, and it shows how far we've come in changing mind-sets globally. I have assured Member States that our negotiations with these countries will continue with speed and ambition, with the aim of presenting results before the end of the year. "
The revised Savings Tax Directive will be part of the EU's legislative structure for implementing the Common Reporting Standard, the new global standard on automatic exchange of information which has been developed by the Organisation for Economic Co-operation and Development (OECD).
Šemeta said: "As a result, we can now be confident that our approach is fully consistent with the global one."
Tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, said: "The EU is slightly playing 'catch-up' a little here. Luxembourg and Austria have already signed up to the OECD's "Common Reporting Standard" for automatic information exchange between signatory countries, and the EU has rather been kicked out of the driving seat on tax transparency. Nevertheless, the breaking of this dead-lock within the EU is a momentous occasion in the journey from tax secrecy to tax transparency. There are now no real impediments to greater information sharing and cooperation within the EU and its near neighbours."
Collins also highlighted the global context of developments in Europe. He said: "The US's crackdown on tax evasion through the 'FATCA' legislation has caused a paradigm shift in the debate about banking secrecy. Offshore financial centres throughout the world are being forced to report automatically on US citizens because otherwise they face massive withholding taxes if they want to do business with the US. The wider question is how does the rest of the world hang on to the US's coat tails? The OECD's CRS has been adopted by 43 countries so far, including the UK and EU offshore financial centres. However, none of rest of the offshore centres in the world have given the slightest indication that they plan to join in.
"The EU is finally acting with one voice, rather than being introspective about what each member state is doing," said Collins. "The real battle they face is ensuring a level playing field not in the EU but across the other financial centres in the world. Perhaps the EU ought to think about acting together and applying an EU-wide withholding tax, aping how successful the US has been in getting the world's banking industry to share information on EU residents?"
Announcing Luxembourg and Austria's agreement to back the amendment last week, EU president Herman Van Rompuy described the development as "indispensable for enabling the member states to better clamp down on tax fraud and tax evasion" and said that "Banking secrecy is set to die."