Liechtenstein under EU pressure on taxation

Yesterday I wished for public EU information to be more readily available and specific about the remaining issues regarding the common travel area: Liechtenstein heading for Schengen area (27 December 2010).

In the blog post 'What does the EU want from Liechtenstein?' (25 December 2010) we noticed how central EU aims in tax matters are with regard to the Principality:

Council conclusions on EU relations with EFTA countries; 3060th GENERAL AFFAIRS Council meeting Brussels, 14 December 2010

The General Affairs Council (GAC) dedicated three and a half out of eight paragraphs to issues regarding taxation and relevant to the financial services industry in the Principality of Liechtenstein:

21. With regard to cooperation and information exchange in tax matters and the fight against fraud and tax evasion and any other illegal activity to the detriment of the financial interests of the parties, the Council welcomes the commitments taken by the Principality to implement OECD standards on transparency and on tax information exchange and to fight against fraud, and calls on Liechtenstein to continue its efforts in this area. The Council expects a quick and consistent implementation of these commitments in the relationship between Liechtenstein and the EU and all its Member States.

22. Concerning the taxation of savings, the Council welcomes the openness of Liechtenstein to launch negotiations on a revision of the savings taxation agreement to reflect the evolution of the corresponding EU acquis, once the EU has agreed the final text for its review of the savings taxation directive.

23. Considering that the EFTA Surveillance Authority has taken in recent years several decisions relating to state aid granted by Liechtenstein, the Council reiterates its recommendation of 2008 that Liechtenstein assesses all measures applied to industry, services and trade with respect to the definition of state aid provided for in the EEA Agreement, particularly in finance. The Council welcomes the intention of Liechtenstein to reform its tax legislation and looks forward to a reform compatible with state aid legislation. The Council will closely follow the implementation of this reform.

24. With regard to harmful tax practices, the Council encourages the Principality to continue discussions with the EU on the application of the principles and criteria of the EU Code of Conduct on business taxation.

Taxation and banking

I would have hoped for complementing quality information from the Council about the EU's aims regarding more controversial issues, such as cooperation against fraud and tax evasion, the revision of the savings tax agreement, state aid reform and curtailing harmful tax practices.

The European Union needs to take a more open attitude towards specifying the problems (as it sees them), defining its objectives and publishing reports on progress (or lack of it) in negotiations.

We can also hope for the EU's counterparts, in this case the Principality of Liechtenstein, to present their positions and arguments transparently.


DG Taxation and Customs Union

I have to admit that I found the web pages of the Commission service Taxation and Customs Union disappointing, because they did not offered clear thematic pages, country pages or search options.

The DG seemed to leave visitors only crumbs to pick here and there.

The first option is to go back to the annual report, almost a year old, but offering a background view:

Activities of the European Union (EU) in the tax field in 2009

The very first sentence of the report highlighted the aspirations of the EU with regard to Liechtenstein, and concrete issues concerning the Principality are mentioned in many places in the 30 page report:

Widespread tax evasion through the use of Liechtenstein foundations which came to light at the beginning of 2008 once again demonstrated the importance of international cooperation in the area of savings taxation.

With regard to fresher information, the only option seemed to be to trundle through the press releases published in 2010, but at headline level I found nothing relevant.

For those with a wish for a forward view commissioner Algirdas Šemeta spoke about the Commission Work Programme 2011 (CWP 2011) to the Economic and Monetary Affairs Committee of the European Parliament 30 November 2010.

Among other things, commissioner Šemeta said:

… I am working closely with the forthcoming Hungarian presidency to identify how to progress on the savings directive and on the anti-fraud agreements with third countries.

Third, as you know, I am convinced that we have to maintain our efforts in the fight against harmful tax competition both within the EU and with our international partners. We entered in constructive discussions with Switzerland and Liechtenstein on how to extend the principles of the Code of Conduct to those two "third" but "close" countries. I also plan to discuss the future of the Code of Conduct itself with the Member States during the next meeting of the Tax Policy Group.

Council: Tax policy

The Council offers a web page with links concerning Tax policy (Taxation of Savings Income), with links to Liechtenstein, but I have found no quality overview regarding tax discussions with the Principality.

All in all, the information from the Commission and the Council about taxation pressure on Liechtenstein comes in bits and pieces rather than in a comprehensive and user-friendly manner.



Ralf Grahn



P.S. On Se former à la communication européenne, or a bit easier Lacomeuropéenne, Michael Malherbe dissects the communication activities of the EU institutions as an expert engaged for citizens and consumers. His most recent blog post was a review of European communication in 2010.

EU tax: Discussing a part of a fraction of public spending

Total government expenditure in EU-27 during 2011 is forecast at 50.3 per cent of gross domestic product (GDP), according to the publication Public Finances in EMU 2010 (European economy 4/2010).



The draft budget of the European Union for 2011 (DB) corresponds to 1.14 per cent of EU gross national income (GNI), which amounts to EUR 142.6 billion in commitment appropriations.

Very roughly, the EU’s public spending is one 44th part of total public spending in the European Union.



Federal government spending in the United States of America is estimated to be 25.06 per cent of GDP in the financial year 2011.

The cumulative sum of European Union spending is important, but only a tiny fraction of what the US government spends as a proportion of wealth creation.

Still, some people are deluded enough to believe that they live in a centralised European super-state.

Before we see the concrete options, we can only guess that the coming proposal on an EU tax would concern only a part of the minuscule proportion of total public spending the European Union budget stands for in Europe.




Ralf Grahn



P.S. It is easier to understand a language than to use it correctly. As Eurobloggers we could and should promote interaction among Europeans across borders and between linguistic communities. Grahnlaw has adopted a multilingual comment policy:

I do my best to read comments in Danish, Dutch, English, Finnish, French, German, Italian, Norwegian, Portuguese, Spanish or Swedish, even if the Grahnlaw blog and my possible replies are in English.

EU tax: Euroblog discussion on Bloggingportal.eu

One of the few silly season issues to make waves during summer recess in Brussels has been the preliminary announcement by the EU Budget Commissioner Janusz Lewandowski that he will present a few options for an EU tax in September, as reported by Financial Times Deutschland on 9 August 2010 (in German).



For the benefit of those who read English, EUobserver ran a story two days later, where Lewandowski defended the idea of shifting the burden from the budgets of the member states to revenue financed by Europeans more directly (although it would most probably be an indirect tax).



Incidentally, I found no official information on the web pages of Commissioner Lewandowski or the DG Budget or the pages of Financial Programming and Budget, which gives the discussion something of a silly season flavour, at this stage.

Some member state governments and lobby groups wanted to score immediate points by rejecting any proposals out of hand, before seeing the details and arguments.



Despite the predictable gut reactions from the usual suspects, there have also been more measured responses among Euroblogs. A fair sample of blog posts is available under the topics tag Taxation and Customs, and newer, still untagged posts are aggregated in the stream of all posts on Bloggingportal.eu.



In the short term, discussing a European Union tax may be as futile as defence pleading before the French Revolutionary Tribunal during the reign of terror, but EU level taxation touches upon a number of fundamental issues of European integration, ultimately relevant to the security and prosperity of EU citizens.

In some cases aspects have been deliberately or unwittingly distorted by media and citizens, so there is also cause to correct a few misunderstandings.

Let the EU tax discussion continue in order to clarify matters.




Ralf Grahn



P.S. It is easier to understand a language than to use it correctly. As Eurobloggers we could and should promote interaction among Europeans across borders and between linguistic communities. Grahnlaw has adopted a multilingual comment policy:

I do my best to read comments in Danish, Dutch, English, Finnish, French, German, Italian, Norwegian, Portuguese, Spanish or Swedish, even if the Grahnlaw blog and my possible replies are in English.

EU against tax fraud

The work programme of the Spanish presidency of the Council of the European Union has described as unfocused and full of good intentions, but the part concerning taxes, under the ECOFIN Council, is quite concrete: Taxation: The fight against fraud (pages 5 to 7).

It is worth quoting as a background note on EU aims in tax policy, both internally and with regard to third countries:

The meeting of the G-20 held in London in April 2009 and the efforts made by the OECD in order to increase the transparency of tax systems, with particular attention being paid to tax havens, have given a renewed political momentum to the fight against tax fraud within a framework that the European Union has defined as “good governance in tax matters”. In this context, achieving international transparency raises two kinds of challenges for the European Union: internal cooperation in the relations between Member States, and increasing transparency in foreign relations.

The Spanish Presidency will thus pay special attention to the cooperation of Member States in the fight against tax fraud. These efforts will be made in the fields of both direct and indirect taxation.

In the field of direct taxation the priority will be to work on three Directive proposals linked to the fight against tax evasion and to the achievement of appropriate rules governing transparency. The Savings Taxation Directive will expand its scope, both objectively (incorporating a larger number of taxable incomes), and subjectively (incorporating certain entities and legal instruments whose effective beneficiaries are natural persons), thus contributing towards increased efficiency and fairness of taxation on savings. The Directive on Administrative Cooperation will imply the adoption by all Member States of the OECD standards for the exchange of information and, therefore, the end of bank secrecy in the European Union, and it will impose a new general framework on the exchange of information on taxation that will allow the adaptation of the current regulation to the kind of automatic information we need, so that a modern efficient tool will be available in the fight against fraud. Finally, the Directive on Mutual Assistance for Tax Recovery, will improve the tools for recovery of debts that require assistance of other Member States, if either the debtors or their assets are within these states.

If these legislatory proposals are to be effective, it is also necessary for the EU to reach anti-fraud agreements with third-countries (a political agreement with Liechtenstein will be used as a model for negotiations with Andorra, Monaco, San Marino, and Switzerland). During the Spanish Presidency, we will try to achieve the signing of agreements that comply with OECD standards on transparency and information exchange.

Finally, within the field of coordination in direct taxation, the Spanish Presidency will seek to achieve a commitment on anti-abuse clauses. This will be a joint effort by Member States on matters of direct taxation in which problems may appear as a consequence of the fundamental rights contemplated in the Treaty of the EU and of the satisfactory operation of the internal market, and which may also put an end to the infringement procedures opened by the Commission. Likewise, a report will be presented to the Council on follow-up work on the application of the Code of Conduct for Business Taxation corresponding to the period of the Spanish Presidency (Report of the Council). This code of conduct refers to the suppression of tax measures that have or may have a significant harmful influence on business activities within the Union because of the tax competition they create. During the Presidency, the subgroup working on the Code of Conduct will continue its task. This subgroup is in charge of debating anti-abuse issues, such as those related with outbound and inbound dividends.

Likewise, the Spanish Presidency will boost administrative cooperation in the fight against fraud in the field of indirect taxation. In order to do so it will strive to promote the work to make EUROFISC a decentralized network for the exchange of information on VAT fraud among Member States. The EUROFISC network is based on an early warning mechanism and a multilateral risk analysis platform. Moreover, the Presidency will work on the new proposal of a Directive on VAT electronic invoicing rules, an important element of administrative simplification and cost reduction for businesses.

Likewise, the Spanish Presidency will strengthen administrative cooperation in the field of Excises, promoting the implementation of the Excise Movement Control System (EMCS), a new computerised system for monitoring movements of excise goods by electronic means, through the interconnection of customs agencies of various Member States and operators.


Towards a more efficient taxation system

The Spanish Presidency will also ensure that fiscal coordination leads to a more efficient taxation system in various fields. A well designed taxation system can make a decisive contribution to the promotion of energy efficiency, which is indispensable if sustainable long-term growth is to be achieved. The Spanish Presidency will thus give precedence to the proposals of Directives pursuing energy efficiency objectives. It is therefore important to make progress in the modification of the Directive establishing a new framework for the taxation of energy products on the basis of environmental criteria. In this context, during the Spanish Presidency the proposal for the modification of the Directive on the taxation of energy products will be addressed.

As for the VAT, work will be encouraged with respect to the interpretation of new rules of location, together with the taxation of financial services and insurance, and the Special Scheme for Travel Agencies.

Finally, in order for public finances to have a revitalising effect on the economy, it is necessary to take into account the Community budget rules, an essential element of the Union’s daily activities. The entry into force of the Lisbon Treaty requires the modification of some budget rules.

Firstly, the Spanish Presidency will push forward the negotiation of the Financial Regulation Review proposal, which will be presented by the Commission during this semester. This regulation includes the rules on the drafting, approval, execution, and monitoring of the European Union budget, and Spain’s objective will be to take a closer look at simplification, transparency, and rigour in the execution of the budget.

Secondly, the Spanish Presidency will promote the necessary work in order to adapt to the Lisbon Treaty, as soon as possible, the rules applicable to the Union budget.

In short, the next six months will pose significant challenges to the EU in economic and financial issues. The ECOFIN therefore has a considerable task ahead of it in order to successfully exit from the unprecedented economic crisis and at the same time lay the foundations of sustainable and stable growth for the future and of a more social, more competitive, and more environmentally committed Europe.

However, for the EU to move from aims – even widely supported ones – to results in the area of taxation is still a daunting task due to unanimity rules, despite the Commission booklet Achievements in the areas of taxation and customs 2004-2009, published today (8 February 2010; 75 pages including annexed speeches, from page 20).





Ralf Grahn







P.S. The Pirate Party challenges the existing order concerning intellectual property, especially copyright, and attempts to limit the freedoms of Internet users.

In the Swedish political blogosphere the Pirate Party has become the most visible political party, and in the June 2009 European Parliament elections the PP secured two MEPs, although the second one has to wait for the question of the 18 “phantom MEPs” to be resolved before she can officially take up her duties.

Henrik Alexandersson is a prolific blogger about Pirate Party and libertarian causes, from his position as assistant to the Pirate MEP Christian Engström (who blogs in Swedish and English).

Henrik Alexandersson.se (in Swedish) is listed on multilingual Bloggingportal.eu, which by now has grown to 532 great Euroblogs.

Bloggingportal.eu is your useful one-stop-shop for fact, opinion and gossip on EU affairs, i.a. politics, more than thirty policy areas, communication, economics, finance, business, civil society and law.

At the same time Euroblogs are an agreeable way to brush up one’s skills in foreign languages.

If you are interested in the EU or the euroblogosphere, you can also subscribe to the RSS feed for new blog posts appearing on Bloggingportal.eu.

By the way, I also discuss European issuesin Finnish on Eurooppaoikeus and in Swedish on Grahnblawg. At this point in time, my main themes are the European knowledge society, including data protection and intellectual property, the internal market, and the relations between the EU and Switzerland, where banking secrecy and taxation are among the topical issues.

EU TFEU: Exceptions to free movement of capital

Article 58 of the Treaty establishing the European Community (TEC) provides for exceptions to the free movement of capital and payments, and these are taken over by the Treaty of Lisbon in Article 65 of the Treaty on the Functioning of the European Union (TFEU). The Lisbon Treaty provision adds a new possibility to take restrictive measures as regards third countries.


***

Article 65 of the Treaty on the Functioning of the European Union (TFEU) is presented as it stands after the intergovernmental conference (IGC 2007) in the Treaty of Lisbon (ToL) and provisionally consolidated by the Council of the European Union (document 6655/08; page 94-95), with the location of the provision added from the table of equivalences (page 460 to 462):

Part Three ‘Policies and internal actions of the Union’

Title IV TFEU (ex Title III) ‘Free movement of persons, services and capital’

Chapter 4 ‘Capital and payments’

Article 65 TFEU
(ex Article 58 TEC)

1. The provisions of Article 63 shall be without prejudice to the right of Member States:

(a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;

(b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security.

2. The provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with the Treaties.

3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63.

4. In the absence of measures pursuant to Article 64(3), the Commission or, in the absence of a Commission decision within three months from the request of the Member State concerned, the Council, may adopt a decision stating that restrictive tax measures adopted by a Member State concerning one or more third countries are to be considered compatible with the Treaties in so far as they are justified by one of the objectives of the Union and compatible with the proper functioning of the internal market. The Council shall act unanimously on application by a Member State.

***

The intergovernmental conference (IGC 2007) mentions Article 58 of the Treaty establishing the European Community (TEC) in Article 2, point 61, of the Treaty of Lisbon (ToL). See OJ 17.12.2007 C 306/56:

61) In Article 58, the following new paragraph 4 shall be added:

‘4. In the absence of measures pursuant to Article 57(3), the Commission or, in the absence of a Commission decision within three months from the request of the Member State concerned, the Council, may adopt a decision stating that restrictive tax measures adopted by a Member State concerning one or more third countries are to be considered compatible with the Treaties insofar as they are justified by one of the objectives of the Union and compatible with the proper functioning of the internal market. The Council shall act unanimously on application by a Member State.’.

***

The latest consolidated version of the current Article 58 TEC looks like this (OJ 29.12.2006 C 321 E/64):

Article 58 TEC

1. The provisions of Article 56 shall be without prejudice to the right of Member States:

(a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;

(b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security.

2. The provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with this Treaty.

3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56.

***

The European Convention made only cosmetic amendments to Article 58 TEC in Article III-47 of the draft Treaty establishing a Constitution for Europe (OJ 18.7.2003 C 169/35).

***

Article III-158 of the Treaty establishing a Constitution for Europe replaced the word ‘steps’ of the draft Constitution with ‘measures’ as in the current Article 58 TEC, so only the added words in the phrase ‘provisions laid down by law or regulation’ in subparagraph 1(b) remained of the cosmetic changes proposed by the draft.

But the IGC 2004 made one substantial change by adding a fourth paragraph to Article III-158, reproduced below (OJ 16.12.2004 C 310/67):

Article III-158 Constitution

1. Article III-156 shall be without prejudice to the right of Member States:

(a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;

(b) to take all requisite measures to prevent infringements of national provisions laid down by law or regulation, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security.

2. This Section shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with the Constitution.

3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article III-156.

4. In the absence of a European law or framework law provided for in Article III-157(3), the Commission or, in the absence of a European decision of the Commission within three months from the request of the Member State concerned, the Council, may adopt a European decision stating that restrictive tax measures adopted by a Member State concerning one or more third countries are to be considered compatible with the Constitution insofar as they are justified by one of the objectives of the Union and compatible with the proper functioning of the internal market. The Council shall act unanimously on application by a Member State.

***

We see that the fourth paragraph added by the Treaty of Lisbon to what becomes Article 65 TFEU is in essence the corresponding Article III-158(4) of the Constitutional Treaty. The changes in wording relate to general terminological differences between the two treaties.

This ‘parentage’ is mentioned in the German and Finnish ratification bills and in the consultation paper of the Swedish government.

Thus, the amendment fell under the general provision of the IGC 2007 Mandate regarding amendments to the EC Treaty (Council document 11218/07, page 7, point 18): The innovations agreed in the 2004 IGC will be inserted into the Treaty by way of specific modifications in the usual manner.


Ralf Grahn