A proposal to close tax loopholes currently existing under European regulations was shot down at talks between European finance ministers yesterday. The Savings Tax Directive was brought up in order to dissuade individuals and companies from taking advantage of tax loopholes that allow money to be moved without levies being collected. Though it received broad support from most ministers, Austria and Luxembourg were the two countries to voice opposition.
The stance of the two countries is that closing the loophole would decrease the competitiveness of those within the European Union compared to non-member countries. Singled out was Switzerland, which currently has the same gap in tax laws and would thus create a more attractive option to those seeking a way to avoid levies. Austria and Luxembourg have said that they will continue to block the plan unless other countries in the area agree to go along with the initiative or have already dealt with the issue themselves.
Basically, the Savings Tax Directive would have increased information sharing between EU member states in order to make it more difficult to avoid paying taxes. Currently, some interest-bearing assets, such as bank deposits, have to be reported to other countries within the European Union if the assets are held by non-residents. However, for other financial instruments, there is no need to inform other member states about the interest that is accrued, making it easier to dodge paying taxes on such earnings.
If the tax loophole were closed, countries such as Austria and Luxembourg, which have significant financial sectors, could stand to lose business to countries outside of the European Union, as investors who are currently dodging taxes using the loophole would just move their money abroad.
Many EU officials were disappointed by the results, with some even going so far as to call the outcome embarrassing. To the European Union, it seems as if the countries are standing in the way of progress and impeding the collection of much-needed funds. However, it doesn’t look like either Austria or Luxembourg are going to back down, as the passage of the law could seriously harm their economies.
For those looking to pass the legislation, they must now turn their attention to countries outside the European Union to attempt to set an agreement date to close the loophole on an international and inter-organizational basis, thus placating all of those within the EU. Still, it is unclear what sort of support the measure will obtain outside the European Union. With millions of dollars of tax revenues on the line, EU officials will not stop until the loophole is dealt with in a satisfactory manner — that is, until it is closed for good.
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