12 Taxation
| Committee's assessment
| Politically important |
| Committee's decision | Cleared from scrutiny: further information requested
|
| Document details | Draft Council Directive concerning information exchange in the field of taxation
|
| Legal base | Article 115 TFEU; consultation; unanimity
|
| Department | HM Treasury
|
| Document numbers | (35062), 10243/13, COM(13) 348
|
Summary and Committee's conclusions
12.1 The Directive on administrative cooperation
in the field of taxation, Council Directive 2011/16/EU, provides
for the automatic exchange of information between Member States.
With this draft Directive the Commission has proposed amendment
of the existing Directive on administrative cooperation.
12.2 When we first considered this proposal, in July
2013, we asked, before we would consider the draft Directive further,
to know what problems, if any, the Government foresaw in negotiating
the Commission proposal. Last month, very belatedly, the Government
responded giving us an informative account of the need for this
proposal but announcing its intention to override the scrutiny
reserve.
12.3 We had no issue with the substance of this proposal,
as now explained to us. But we were greatly concerned about the
procedural failures revealed. We recognised that there may have
been little time to actually secure scrutiny clearance. However,
we said that, given the OECD agreement on a global standard in
July, there was no reason we should not have been informed of
this development and how it related to our original request for
information. So we asked for a fuller explanation from the Government
of this failure and an indication of how such lapses would be
avoided in the future. Meanwhile the document remained under scrutiny.
12.4 The Government now tells us that the Council
reached political agreement on the proposal on 14 October and
that it will be formally adopted on 9 November. It explains the
rationale for the proposal, how it will be implemented and its
consequences for the Savings Directive and third country agreements.
But it does not explain the scrutiny breach, although it says
that new Treasury procedures should avoid such lapses in the future.
12.5 We see no reason to continue to hold this
document under scrutiny and accordingly clear it. However, we
are disappointed that the Government did not see fit to properly
explain the scrutiny lapse. We note and accept the statement that
new Treasury procedures should avoid such lapses in the future,
but we still require the Government to provide us with the fuller
explanation we requested previously.
Full details of the documents:
Draft Council Directive amending Directive 2011/16/EU as regards
mandatory automatic exchange of information in the field of taxation:
(35062), 10243/13, COM(13) 348.
Background
12.6 The Directive on administrative cooperation
in the field of taxation, Council Directive 2011/16/EU, provides
for the automatic exchange of information between Member States.
With this draft Directive the Commission has proposed amendment
of the existing Directive on administrative cooperation. The purpose
is to reflect recent international developments in automatic exchange
of information. The main element in the draft Directive is the
addition of new categories of information to be automatically
exchanged, that is, dividends, capital gains, any income generated
with respect to assets held in a financial account, including
redemption payments, and account balances. The Commission has
also proposed removal of the thresholds below which a Member State
may not wish to receive information.
12.7 When we considered this proposal, in July 2013,
we noted the Government's support for a single global standard
in the automatic exchange of information. However, we were not
told whether the Government perceived an actual threat of prejudicing
this outcome in the Commission's proposal. So we asked, before
we would consider the draft Directive further, to know what problems,
if any, the Government foresaw in negotiating the Commission proposal.
12.8 In October we heard that the proposal was about
to be adopted before we could further scrutinise it. We had no
issue with the substance of the final proposal, as now explained
to us. But we were greatly concerned about the procedural failures
now revealed. So we asked for a fuller explanation from the Government
of these failures and an indication of how such lapses will be
avoided in the future. Meanwhile the document remained under scrutiny.
The Minister's letter of 26 November 2014
12.9 The Financial Secretary to the Treasury (Mr
David Gauke), first recalls his previous letter explaining his
intention to breach the scrutiny reserve, apologises for this
again and reiterates the importance of the measure for the UK.
He says that the amendments proposed by the draft Council Directive
would bring the new single global standard on automatic exchange
of taxpayer information into EU law, something which the UK has
been leading on globally, and move closer to the implementation
of the new standard on a global basis. He then reports that:
· political agreement by all Member States
was reached at the ECOFIN Council of 14 October;
· Luxembourg agreed in the final negotiations
to the implementation of the amending Directive to the same timetable
as had already been agreed by 26 other Member States, removing
any need for delayed implementation in its case; and
· this timetable will see the first exchange
of information in 2017 in respect of accounts that are open at
the end of 2015 and new accounts opened from 1 January 2016.
12.10 The Minister adds that:
· it was agreed, however, that Austria could
have up to a further year for implementation;
· Austria argued that it needed additional
time in order to create "links" between Austrian financial
institutions and the Austrian Tax Authority, since they do not
currently exchange information under the Savings Directive (but
have withholding arrangements instead);
· this is not something that the Government
has ever understood and UK officials have engaged with the Austrian
Finance Ministry on this on a number of occasions;
· there is no need for new infrastructure
— the information can pass in encrypted form through ordinary
secure internet links as the Government would expect to be the
case between Austrian financial institutions and the US tax authorities
under FATCA (the US Foreign Account Tax Compliance Act);
· however, in order to reach agreement by
the end of the year, as requested at the May European Council,
a compromise was agreed which allows Austria the possibility of
an additional year;
· the Austrian Finance Minister stated at
the ECOFIN Council that he would make all efforts to try and meet
the 2017 exchange timetable and the Government is hopeful that
as Austria examines implementation issues further that it will
be able to do so;
· as he told us previously, the Government's
view is that a difference of one year in implementation will make
little practical difference;
· the main risk that it has been concerned
with, in its wider and highly successful diplomatic efforts to
get all financial centres on a 2017 or 2018 first exchange timetable,
is the possibility of evaders simply moving their assets between
jurisdictions that have announced implementation plans and those
that have not;
· the Government judges this risk to be
minimal where the difference in timetable is just one year;
· in the meantime Austria will continue
to withhold under the Savings Directive in respect of UK taxpayers;
and
· he attaches a note, in relation to the
Government's wider concern, which sets out the jurisdictions,
including virtually all financial centres, which have made commitments
to implement the global standard to a 2017 or 2018 timetable (and
which we annex).
12.11 The Minister also tells us, in relation to
the ECOFIN Council, that:
· Finance Ministers also agreed to give
a mandate to the Commission to repeal the Savings Directive, subject
to appropriate transitional arrangements to ensure there is no
gap in coverage for Austria or the five third countries (Switzerland,
Liechtenstein, Monaco, Andorra and San Marino);
· this will avoid any duplication which
would result in increased and unnecessary burdens and costs for
the financial services industry;
· Ministers also called for the existing
Savings Agreements with the third countries to be brought into
line with the new global standard; and
· the Commission expressed optimism that
such agreements would be reached in a very short time frame.[63]
12.12 The Minister then gives us more detailed information
related to the draft Directive and its implementation, saying
that:
· as regards estimates of the costs of the
Directive, a draft impact assessment for domestic implementation
will accompany draft legislation to give effect to the new Directive
(which will be in line with the Government's planned implementation
of the global standard on which HMRC has been consulting) —
it is aiming to consult on draft legislation by the end of the
year;
· the Government expects the costs of implementation
to be a small proportion of the FATCA implementation costs, based
on its experience with the bilateral agreements with the Crown
Dependencies and Gibraltar;
· these agreement were based on FATCA, but
with some changes to reflect the different circumstances, in particular
taxation on the basis of residency;[64]
· the estimate for costs on business were
£50 million to £110 million — this contrasts with
the estimated costs of FATCA implementation of between £1,100
million to £2,000 million;[65]
· the Government would expect the implementation
of the Directive to result in costs closer to the agreements with
the Crown Dependencies and Gibraltar than the estimated FATCA
costs;
· this is because industry will already
have made many of the necessary IT and administrative changes
in implementing FATCA and the Crown Dependencies and Gibraltar
agreements and because of further simplifications to the due diligence
process under the global standard;
· in addition, the switching off of the
Savings Directive when the Directive comes into force will result
in as yet unquantified savings — the Government will also
continue working very closely with industry to minimise costs;
· as for discussion of the standard with
representatives of the insurance industry, where there was difference
in interpretation of the commentary to the new standard (a form
of guidance) between the Member States and those representatives,
the global standard does not require reporting of insurance or
annuity contracts where this is "effectively prohibited by
law";
· the commentary states that "where
the applicable law does not prohibit Reporting Financial Institutions
from selling insurance or annuity contracts outright, but requires
them to fulfil certain conditions prior to being able to sell
such contracts to residents of the Reportable Jurisdiction (such
as obtaining a license and registering the contracts), a Reporting
Financial Institution that has not fulfilled the required conditions
under the applicable law will be considered to be 'effectively
prevented by law' from selling such contracts to residents of
such Reportable Jurisdictions";
· representatives of the insurance industry
had taken this to mean that where an insurance company had not
undertaken the administrative steps required under Directive 2002/83/EC
then they were effectively prevented by law;
· this was not an interpretation shared
by the Member States which negotiated the commentaries in the
OECD and which would not have agreed the commentary on the interpretation
given to it by industry representatives;
· a number of Member States have said that
they experience significant numbers of sales to the residents
of other Member States by insurance companies that have not undertaken
the administrative steps and they wish this to be the subject
of reporting (as it is in the Government's agreements with the
Crown Dependencies);
· the Commission and the Council Legal Service
were also of the view in the negotiations that the administrative
steps required by EU law did not amount to sales "effectively
being prevented by law"; and
· HMRC is working closely with all industry
representatives on UK guidance on the Directive which should clear
up what seem to be a number of misunderstandings about the due
diligence required for pre-existing accounts which will hopefully
reduce industry concerns about the burdens.
12.13 Finally, the Minister apologises again for
the delay in keeping us informed on this dossier and the override
of the scrutiny reserve, saying that:
· while not excusing it in any way, in this
particular instance a number of factors came together which contributed
to the oversight;
· as he hopes we can acknowledge, this was
an isolated incident in the Treasury's recent record on scrutiny;
· he assures us, however, that the Treasury
is putting in place further measures on top of its existing systems
and guidance to help ensure that this is an incident that is not
repeated;
· he hopes that on the basis of these explanations
we will be able to clear this dossier from scrutiny; and
· the Government is currently expecting
formal agreement to the proposal to be sought at the ECOFIN Council
on 9 December.
Previous Committee Reports
Ninth Report HC 83-ix (2013-14), chapter 9 (10 July
2013) and Thirteenth Report, HC 219-xiii (2014-15), chapter 18
(15 October 2014).
63 See http://europa.eu/rapid/press-release_MEMO-14-591_en.htm
and http://europa.eu/rapid/press-release_SPEECH-14-693_en.htm.
Back
64
The impact assessment that the Government published with the regulations
for the intergovernmental agreements with the Crown Dependencies
can be found at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/358566/gib-crown-dep.pdf. Back
65
See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357543/itc-regs-2013.pdf. Back
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