European Countries Move to Toughen Stance on Tax Evasion
By STEVEN ERLANGER and DAVID JOLLY, New York Times
PARIS — Buffeted by a political scandal, a stagnant economy and angry public reaction to a report about secret offshore bank accounts, President François Hollande of France announced the creation of a special prosecutor Wednesday to pursue cases of corruption and tax fraud and vowed to eradicate tax havens “in Europe and the world.”
As he spoke, one of those tax havens, Luxembourg, said it would bow to pressure from its European allies and begin forwarding the details of its foreign clients to their home governments. Luxembourg, with only half a million people and a banking sector more than 20 times larger than 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 had a huge banking sector fueled by foreign money.
The announcement from Luxembourg came a day after the five European countries with the biggest economies — France, Britain, Germany, Italy and Spain — agreed to exchange banking data and create their own automatic tax data exchange, one modeled on the U.S. Foreign Account Tax Compliance Act, passed by Congress in 2010 to try to track down the overseas assets of Americans who might be dodging taxes.
The European governments said they hoped the information exchange would not only “help in catching and deterring tax evaders” but also provide “a template” for a 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 E.U. member states to sign up.
The announcements come a week after the publication of an exposé by a Washington-based group, the International Consortium of Investigative Journalists, into the assets held in overseas tax havens. The report, which centered on the Caribbean, and especially the British Virgin Islands and the Cayman Islands, also embarrassed European governments, including Luxembourg, by showing how wealthy citizens routinely hide assets, sometimes legally and sometimes not, and avoid paying taxes by setting up offshore companies.
The report has set off something of a scramble to calm public anger over widespread tax dodging by the rich at a time when governments are cutting their 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 some 4,000 Americans.
The consortium has refused requests by governments for access to the files, saying that it was not an arm of law enforcement. Newspapers working with the group, including Le Monde in France and Le Soir in Belgium, have also said they would not hand over data to the authorities.
Britain has been especially embarrassed because so many of the accounts seem centered in the British Virgin Islands and the Cayman Islands, both British overseas territories. But British officials say London cannot tell the local governments what to do. The British do point to new arrangements reached recently with the Isle of Man, Guernsey and Jersey to exchange financial and tax information and say that London is already “in discussions” with its various overseas territories.
Mr. Hollande’s announcement on national television was prompted more 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 the special prosecutor, he also ordered cabinet ministers to disclose their finances and asked legislators to do the same, while promising to create an independent authority to monitor the assets and possible conflicts of interest of senior officials and legislators.
Mr. Hollande also said French banks would be required to declare all their global subsidiaries. “I will not hesitate to consider any country that refuses to fully cooperate with France as a tax haven,” he said.
Less than a year in office, Mr. Hollande’s ratings in the 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. The cover of L’Express has the headline, “Mr. Weak,” Le Point asks on its cover whether he is “up to the task,” and Mr. Hollande and his aides saw the announcement Wednesday 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 of Nicolas Sarkozy. Mr. Cahuzac was fired and expelled from the party, but the idea of a minister in charge of fighting tax fraud committing it himself has been deeply damaging.
As his boss, Finance Minister Pierre Moscovici, himself under fire, said in an interview: “We need to have a bit more distance, but of course it’s a bad thing for democracy and for politics. People will say once more that the leaders of the country and all politicians are rotten. What people expect from a government is morality and ethics, but first of all results.”
The problem for Mr. Hollande is that he is seen now as having delivered neither morality and ethics nor results.
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. The commission described France’s resilience to external shocks as “diminishing” and its medium-term growth prospects as “increasingly hampered by longstanding imbalances,” noting that France’s share of European Union exports declined by 11.2 percent from 2006 to 2011, while rising labor costs damaged competitiveness.
The move by Luxembourg toward disclosure leaves Austria as the lone holdout in the European Union, opting to pay a 35 percent withholding tax on the interest income of accounts held by foreigners in their banks to their country of residence but refusing to disclose their 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 key 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.”
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