12 September 2013

Deutsche Bank: Savings tax, administrative cooperation & co.

Not only the dynamics and the number of international initiatives to improve tax collection and cooperation in respect of cross-border (investment) income but also the public interest in these issues have rarely been as pronounced as they are today. This is partly due to the persistently high levels of sovereign debt, which is why the EU Member States in particular need to rely on an abundance of tax revenues. This is also partly due to the fact that the United States has forced the issue since mid-2012.

In related debates and numerous initiatives it is important to distinguish between two phenomena: the fight against (illegal) tax evasion (especially regarding investment income) on the one hand and legal, so-called "aggressive" tax planning via profit shifting on the other. From the standpoint of the tax authorities, the two avoidance phenomena are the same in terms of their impact, since they ultimately lead to lower tax revenues and also call the uniformity and fairness of the tax regime into question. When choosing suitable countermeasures, however, it is necessary to differentiate between the two concepts.

Efforts to establish the automatic exchange of information for tax purposes as the European and/or international standard are relatively advanced. At the EU level, two proposals have been tabled to extend the scope of the Savings Tax Directive and of the Administrative Cooperation Directive. Their aim is to establish the automatic exchange of information for a multitude of income types by 2015. These include not only interest income but also dividends, capital gains and all other types of income with respect to the assets held in a financial account. The directives are to be adopted by the end of 2013 and the exchanges of information are to start at the beginning of 2015. Basically, the odds of this happening are not bad; the starting date is very ambitious, though.

So-called "aggressive" tax planning, which enables the de facto tax exemption of profits, cannot be addressed by means of an expanded exchange of information. To do so would require extensive intervention in the tax systems along with cross-border taxation procedures. Differences in taxation systems between countries as well as the outdated basic concept of national taxation systems and of the principles of international taxation make it virtually impossible for the authorities to adequately capture today's highly integrated value chains and new business models and technologies. The OECD has launched proposals to address these issues. The EU Member States have resolved to support the measures proposed. The broadest possible involvement of many countries is the prerequisite for bringing about effective changes.

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