As he spoke, one of those tax havens, Luxembourg, announced that it would bow to pressure from its European allies and begin forwarding the details of its foreign clients’ accounts to their home governments. Luxembourg, with only half a million people and a banking sector more than 20 times the size of its gross domestic product, is one of Europe’s largest financial centers and has been compared to Cyprus, a fellow member of the euro zone that, until recently, had a huge banking sector fueled by foreign money.
Luxembourg’s announcement came a day after five of the biggest European countries — Britain, France, Germany, Italy and Spain — agreed to exchange banking data and create their own automatic tax data exchange. That mechanism would be modeled on the Foreign Account Tax Compliance Act, passed by Congress in 2010 to track the overseas assets of Americans who might be dodging taxes.
The European governments said they hoped that the information exchange would not only help in catching and deterring tax evaders but also provide a “template” for a future, wider multilateral agreement. In a joint letter released Tuesday, they urged the European Union commissioner responsible for taxation, Algirdas Semeta, to work to get all 27 members of the European Union to sign up.
The announcements come a week after the Washington-based International Consortium of Investigative Journalists announced that it had obtained confidential information relating to tens of thousands of offshore bank accounts and shell companies. The leaked data, which centered on the Caribbean and especially the British Virgin Islands and the Cayman Islands, embarrassed European governments, including Luxembourg, by showing how wealthy citizens routinely hide assets, sometimes illegally, and avoid paying taxes by setting up offshore companies.
The report has set off a scramble by governments to calm public anger over widespread tax dodging by the rich when governments are cutting budgets and calling on citizens to pay higher taxes.
The journalist consortium, a project of the Center for Public Integrity, disclosed confidential information on more than 120,000 offshore companies and trusts and nearly 130,000 individuals and agents, including 4,000 Americans. But the consortium has refused requests by governments for access to the files, saying that it is not an arm of law enforcement. Newspapers working with the group, including Le Monde of France and Le Soir of Belgium, have said they will not hand over data to the authorities.
Britain has been especially embarrassed, because many of the accounts are in the Virgin Islands, the Cook Islands and the Cayman Islands, all British overseas territories. But British officials insist that London cannot tell the local governments what to do. The British cited new arrangements with the Isle of Man, Guernsey and Jersey to exchange financial and tax information, and said London was already “in discussions” with its various overseas territories.
Mr. Hollande’s announcement, made on national television, was prompted by a domestic political crisis over official morality in a country with weak rules for public disclosure of the assets of politicians and ministers. In addition to creating the prosecutor position, he ordered cabinet ministers to disclose their finances and asked legislators to do the same. He also promised to create an independent authority to monitor the assets and possible conflicts of interest of senior officials and legislators.
Mr. Hollande said French banks would be required to declare all their global subsidiaries, adding, “I will not hesitate to consider any country that refuses to fully cooperate with France as a tax haven.”
Mr. Hollande, a Socialist, has been in office less than a year, but his job approval ratings in opinion polls are at a record low, and there is a growing militancy in the opposition against him from both the far left and the center-right. With headlines calling him “Mr. Weak” and asking whether he is “up to the task,” Mr. Hollande and his aides see Wednesday’s announcement as a means to assert authority, change the conversation and regain momentum.
The scandal over Jérôme Cahuzac, the budget minister who lied about having undeclared bank accounts overseas, has gone to the heart of the Socialists’ claim to be a scrupulously honest and transparent alternative to the previous administration, led by Nicolas Sarkozy. Mr. Cahuzac was fired and expelled from the party, but that the minister in charge of fighting tax fraud had committed it himself has been deeply damaging.
On Wednesday, the European Union issued a report warning Spain and Slovakia about dangerous macroeconomic imbalances, but it offered serious concerns about France as well. France’s resilience to external shocks is “diminishing” and its medium-term growth prospects are “increasingly hampered by long-standing imbalances,” the report said, noting that France’s share of European Union exports declined by 11.2 percent from 2006 to 2011, while rising labor costs have damaged competitiveness.
The move by Luxembourg toward disclosure leaves Austria as the lone holdout in the European Union. It pays a 35 percent withholding tax on the interest income of accounts held by foreigners in Austrian banks to their country of residence, but refuses to disclose the account holders’ identities.
Luxembourg acknowledged that it was negotiating a bilateral information exchange with the United States as part of the 2010 Foreign Account Tax Compliance Act, which was a crucial development in its decision to come clean with Europe.
“The heart of it is that they’ll be providing account data to the United States,” said Ben Jones, a tax expert in London at Eversheds, a global law firm. “If they get to that point, they can hardly continue keeping it from Europe.”
Andrew Higgins contributed reporting from Brussels.
Article source: http://www.nytimes.com/2013/04/11/business/global/european-countries-move-to-toughen-stance-on-tax-evasion.html?partner=rss&emc=rss
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