THE STATE OF THE EUROPEAN UNION

THE STATE OF THE EUROPEAN UNION

oversight of each other’s implementation of

global OECD transparency standards, which at

that time were based on the principle of infor-

mation upon request. Peer group members of

the OECD’s Global Forum examined each oth-

er’s progress from two perspectives: emphasis

was placed on legal frameworks during the first

phase and the effective application of the tax

treaties or bilateral agreements they had signed

was stressed throughout the second.

The OECD may issue recommendations re-

garding the steps participant countries must

take to rectify deficient practices and/or laws,

and these jurisdictions are aware that any fail-

ure to act on them may provoke censure on the

part of the G20. Although this peer review pro-

cess does have a deterrent effect, it would

make sense to implement a system capable of

putting more pressure on jurisdictions refusing

to cooperate by means of swift, multilateral

sanctions.

Banking secrecy and the automatic exchange

of information as a new global standard

The most important development related to

banking transparency during the period 2013–

2014 was without a doubt the substitution of

the existing global standard for information

sharing based on the concept of information

exchange on request

with a new standard of

automatic exchange of information (AEOI).

As opposed to AIE, the principle of “information upon

request” calls for national authorities to present a formal

request for information on a given account to the govern-

ment of the country in which the funds in question are held.

The petitioning authorities must also provide proof that the

information requested is relevant to an investigation, and

the decision as to whether or not information is shared rests

solely in the hands of the jurisdiction in which the said ac-

count is maintained.

The EU has adapted its norms to the new

OECD standards to reflect this historic shift. All

EU Member States with the exception of Austria

have made a commitment to become early

adopters of the OECD’s standard for the auto-

matic exchange of information. As such, they

must implement AEOI standards by September

2017. Austria and other jurisdictions such as

Switzerland are on track to complete implemen-

tation by early 2018.

It is worth taking a closer look at the process

that has led up to this landmark achievement.

The EU was a pioneer when it introduced a sys-

tem of automatic exchange of information in

2005. The EU Savings Tax Directive (EUSTD)

contained such a system, but it only covered one

specific type of income (the interest payments

received by natural persons) and therefore did

not affect companies, trusts or foundations. The

narrow scope of this directive left a loophole

that made it easy to circumvent the EUSTD by

either transferring funds from an individual to a

legal person or a trust or converting investments

into alternative financial instruments such as

shares. Furthermore, the EUSTD granted Austria

and Luxemburg temporary exemptions from the

obligation of exchanging information automati-

cally contingent upon their implementation of

tax withholding systems

Although the European Commission put for-

ward a proposal intended to address these

shortcomings in 2008, both countries used their

veto power in the Council to maintain these

loopholes until they were finally closed in 2014,

justifying their position by stating they had no

Directive 2003/48/EC on taxation of savings income in

the form of interest payments (EUSTD

In exchange for this exemption, these two countries im-

plemented a withholding system that guaranteed a mini-

mum tax payment to account holders’ countries of resi-

dence.