EU losing one trillion euros a year to tax dodging

Reuters: Tax dodging causes the European Union to lose around 1 trillion euros of income each year, the president of the European Council said on Friday as he announced that EU leaders would discuss the issue at a summit next month.

This haemorrhage of tax revenues is equivalent to the entire annual economic output of Spain, and far exceeds the total of about 400 billion euros committed to the bailouts of euro zone member states Greece, Ireland, Portugal and Cyprus.

“We must seize the increased political momentum to address this critical problem,” Herman Van Rompuy, who chairs meetings of EU leaders, said in a statement broadcast on the Internet.

“Tax evasion is unfair to citizens who work hard and pay their share of taxes for society to work. It is unfair to companies that pay their taxes - but find it hard to compete because others don’t.”

Van Rompuy’s message, and the addition of the issue to the agenda of the summit in Brussels on May 22, will add to pressure on Austria to conform with the rest of the EU on sharing information about bank depositors.

Austria is the only one of the EU’s 27 member states unwilling to sign up to EU rules on the automatic exchange of depositor data, with the finance minister intent on protecting Austria’s long history of banking secrecy.

EU policymakers say having all EU countries signed up to the EU savings directive, the piece of legislation that calls for sharing of depositor data, will help to combat tax evasion.

Luxembourg, which has the biggest banking sector in the EU relative to its gross domestic product, announced this week it was willing to sign up to the directive from January 2015, leaving Austria as the only EU stand-out.

The shifting tide has raised alarm in Switzerland, the world’s biggest offshore banking centre with $2 trillion in assets, as well as in neighbouring Liechtenstein.

The Swiss Bankers Association said on Wednesday it did not see automatic exchange of information as an option for Switzerland because it is not part of the EU, noting there is currently no EU mandate for negotiations on the subject.

Liechtenstein Prime Minister Adrian Hasler told Swiss television on Thursday his country was well aware of mounting pressure over the issue. “The financial centre knows that at some point it may go in this direction now that there is a certain momentum in the question,” he said.

EU finance ministers, meeting in Dublin on Friday, discussed the problem, which Germany and the European Commission have said they are determined to tackle so as to close tax avoidance loopholes.

Van Rompuy said around one trillion euros was being lost across the EU each year because of tax evasion and avoidance.

“To give you an idea, one trillion euros is about the same as the entire GDP or total income of Spain, the fifth biggest economy of the European Union,” he said in his video message.

“It is about the same as the Union’s budget for the full seven years ahead. And it is one hundred times more than the loan that was recently agreed for Cyprus.”

With taxpayers providing the backstop for the 500 billion euro rescue fund the euro zone has created to tackle the debt crisis, ensuring that tax revenue does not leak out of the system through evasion is all the more pressing.

“Tax evasion is a serious problem for countries that need resources to restore sound public finances,” Van Rompuy said. “The current economic crisis only helps to stress the urgent need for fair and effective tax systems.

We simply cannot afford nor tolerate tax complacency.”