EU Backs US-Led Tax Evasion Crackdown

European leaders have thrown their weight behind a growing momentum on tax evasion crackdown, backing U.S.-led efforts to develop a new global template to end corporate tax scandals and combat banking secrecy.

Amid mounting public outrage over individual and corporate tax scandals, the European Union on Wednesday pledged to clamp down on the “staggering” levels of tax evasion and push for the greater sharing of income information between tax authorities.

European leaders have thrown their weight behind a growing momentum on tax evasion crackdown, backing U.S.-led efforts to develop a new global template to end corporate tax scandals and combat banking secrecy.

Amid mounting public outrage over individual and corporate tax scandals, the European Union on Wednesday pledged to clamp down on the “staggering” levels of tax evasion and push for the greater sharing of income information between tax authorities.

“At the international level, the EU will play a key role in supporting and promoting the automatic exchange of information as the new international standard,” officials agreed at the end of the special one-day EU tax summit, welcoming “ongoing efforts made in the G8, G20 and OECD to develop a global standard”.

A key goal, EU leaders say, is to prevent multinational firms exploiting legal loopholes.

It is estimated that tax evasion costs EU states 1 trillion euros ($1.3 trillion) a year, almost the size of the bloc’s budget for the next seven years.

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Pressure is likely to be placed on Switzerland, a non-EU member, to relax its banking secrecy laws amid anger over revelations about Greek and French politicians holding secret Swiss bank accounts. Germany has also been recently rocked by revelation over the tax affairs of Bayern Munich president Uli Hoeness.

“How can we explain to honest households and businesses who are feeling the squeeze yet still paying their fair share of taxes, that there are other parts of society and enterprise who are deliberately avoiding paying up?” asked Jose Barroso, president of the European Commission, in his speech to parliament.

A trillion euros was, he said, “a huge amount of money to simply let through the net”.

Barroso added he hopes to introduce EU-wide automatic exchange of income information on 1 January 2015. EU tax authorities, he pointed out, already automatically exchanged information for income such as employment, pensions and insurance but he was proposing to include “all relevant types of income, such as dividends and capital gains”.

Agreeing to share tax information between EU states is a “huge step forward” and the summit had achieved more on the tax issue than had been accomplished in years, said German Chancellor Angela Merkel.

“We made decisions today, and sent a clear signal against tax evasion,” she said. “In this new situation, we are ready to speak with Switzerland and others … We’ve been working on this for years.”

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Hope of an EU-wide agreement on sharing tax information has to date been blocked by Austria and Luxembourg, whose banking systems are among the most secretive in the EU.

But Austrian Chancellor Werner Faymann on Wednesday joined the call for a crackdown on tax evasion. “We won’t be the ones who put on the brakes and block things, and not the ones whose concerns put up blockades,” he said.

President of the European Council Herman Van Rompoy said the economic crisis had injected new momentum into the debate on fair taxation and denied the EU was seeking tax harmonisation across the Europe.

“It’s a real breakthrough… I am really convinced there is a strong political will by leaders not just on the European level, but on the global level, to tackle tax fraud,” he told a news conference.