Embarrassing results for EU in tax transparency report

Cyprus and Luxembourg flout transparency rules

Luxembourg, Cyprus and Switzerland are among a handful of countries and offshore jurisdictions flouting an international standard on tax transparency, according to a report sponsored by the Organisation for Economic Co-Operation and Development (OECD) that was published on Friday (22 November).

The report makes uncomfortable reading for the European Union, which despite pushing the fight against tax fraud and avoidance up the international agenda has been unable to speak with one voice.

Algirdas Šemeta, the European commissioner for taxation, customs, statistics, audit and anti-fraud, speaking on Tuesday (25 November) in the European Parliament, described the numerous initiatives taken by the European Commission in the last six months, including a quick reaction mechanism to fight VAT fraud, a standardised EU VAT form and a move to close some tax loopholes.

The Commission has also started negotiating new tax treaties with Monaco, Andorra, Lichtenstein and San Marino, and is likely to do the same with Switzerland. Yet despite this flurry of activity, ministers from Luxembourg and Austria, meeting their colleagues in Brussels in mid-November, refused to drop their opposition to a key proposal to introduce stricter rules within the EU on the automatic exchange of information between tax authorities.

EU member states have a veto on most EU proposals on tax, including this one, which is likely to return to the fore as EU leaders meeting in mid-December are scheduled to discuss tax issues.

A review of 50 leading jurisdictions identified substantial shortcomings in how Luxembourg and Cyprus had implemented a standard on sharing information for tax purposes that was drawn up by the United Nations and the OECD. The Seychelles, which is a series of islands off the African coast, and the British Virgin Islands, a British overseas territory, also failed to implement the standards satisfactorily.

Among the criticisms of Luxembourg, the report said that the Duchy had not done enough to establish the identity of certain classes of shareholders and had refused to provide information relating to the period before it signed up to the standard in 2009.

As for Cyprus, the report criticised the low percentage of companies that complied with their reporting obligations and the length of time it took for the Cypriot authorities to respond to requests for information, if at all.

The report did not rate Switzerland’s compliance, since despite committing itself to the standard the country has not even put the necessary rules in place. Austria, together with Turkey, was only partially compliant, while jurisdictions such as Singapore, Monaco, Qatar and Bermuda were all found to be largely compliant with the standard.

The Global Forum on transparency and exchange of information for tax purposes was set up in 2001 by the 34 OECD member countries, together with a number of partner countries. It has now grown to encompass 120 countries and jurisdictions, including the EU. Members subject their implementation of the international standards for tax transparency to peer review.