Against tax avoidance

Tax evasion, capital flight, fiscal havens and bunkers, and aggressive planning when it comes to minimizing one’s tax burden: in short, all activities and legislation aimed at avoiding paying taxes, whether brazenly or through sophisticated financial-fiscal engineering methods, received a setback on Wednesday.

The European Council has launched a political message against such practices. What’s more, it has put forward a package of five measures, accompanied by a precise timetable for their implementation. There will be time to point out the limitations that this joint enterprise imposes on the above-mentioned agreements and the possible unforeseen delays and obstacles in its application. Because for certain there will be a little bit of everything in the end run. The European Union has an ingrained habit of setting ambitious goals only to fall short of them, not to mention its proclivity toward dragging its feet in the process. Above all in this particular area — taxation — which normally requires the consensus of all 27 EU member countries, although the Treaty of Lisbon offers indirect alternatives to achieve the same agreements.

Although it remains to be seen, the initial credibility that might be afforded the agreements reached on Wednesday is backed by other factors independent of the summit, one of which is the emergence of cases of tax fraud and evasion involving government ministers, artists, bankers and other celebrities.

Another is the growing disgruntlement of the public over a situation in which the fight against public deficits has taken the shape of spending cutbacks and tax hikes for the majority, while a trillion euros a year in the hands of a privileged minority escapes the clutches of the EUs tax inspectors. As European Council President Herman Van Rompuy summed it up: “The crisis marks the difference.”

The third external factor in increasing the pressure for action is the fiscal pacts agreed by the United States and its five big partners — France, Germany, the United Kingdom, Spain and Italy — to which four other countries have just signed on.

Talks with tax havens

 The most striking agreement reached on Wednesday has to do with the amendment to the directive on the taxation of savings. Austria and Luxembourg have agreed to join the system of automatic data exchanges. According to another directive to be presented in June, transparency will apply to all relevant sources of capital. This means the eradication of all traces of banking secrecy within the EU, a development that is due to come into effect by the end of this year after the pertinent negotiations with neighboring tax havens on adopting the same rule.

Other measures — regarding value-added tax fraud and transfers of earnings between parent companies and their subsidiaries, as well as money laundering — make up the rest of the package. If applied promptly, many things will change in Europe. For the better.