Brussels, 09/02/2012 (Agence Europe) - On Wednesday 8 February, the United States and five European nations - Germany, France, Spain, Italy and the United Kingdom - agreed to set up an automatic information exchange system between their tax services and civil services to prevent tax evasion. The agreement will require changes in the laws of the countries in question to allow US law on the payment of Foreign Account Tax Commitment Acquittal (FATCA, see EUROPE 10403) to come into play.
FATCA will gradually come into force from 2013 onwards and has similar aims to the EU savings tax directive (2003/48/EC), namely preventing the non-payment of tax on capital deposited abroad. It requires foreign financial establishments (FFEs) to provide to the US tax office (IRS) on pain of penalties in the United States, information about name and address of account holders, account balances, withdrawals and deposits on foreign bank accounts in the name of US taxpayers. FFEs cooperating with the IRS will be required from 2014 onwards to pay 30% on virtually all financial transactions with the US from any non-cooperating FFE, thus becoming tax collectors for the United States' government.
Alongside legal issues surrounding the fact that these intrusive demands are being made by another country, FATCA poses financial problems for Europeans because of the high cost for banks of complying and making time-consuming and expensive research to provide information to the US government, often in violation of their own data protection legislation, let alone the costs to their own civil services. These concerns were relayed to the United States by the European Commission in April 2011 (see EUROPE 10354).
The deal partly answers these concerns by setting the exchange of information in an intergovernmental cooperation framework. The five European countries will introduce a law forcing FFEs in their country to submit to the government information of interest to the US government, which would then be sent on to the IRS “automatically” to prevent the banks themselves having to report directly to the IRS. It is said that the usual channels for such information will be used (as are already used for double taxation between the five countries and the US). The Commission is delighted with the agreement, seeing it as leading in time to a full EU-US agreement to clamp down on cross-border tax evasion. (FG/transl.fl)