Austria has given its citizens the chance to legitimise the status of untaxed wealth stashed in Switzerland and Liechtenstein.
This year it became the second country after the UK to implement a tax deal with Switzerland aimed at regularising undeclared assets squirrelled away by its citizens in Swiss banks. At the end of January, it signed a similar agreement with Liechtenstein.
Under these pacts, Austrians with previously untaxed wealth in those states will be able to legitimise their holdings and retain their anonymity in exchange for a one-off penalty charge and submitting to future withholding taxes. Alternatively, they can declare their assets to the authorities and pay the taxes due but without the risk of criminal charges.
The finance ministry expects about €1bn in penalty payments from nationals with money in Switzerland and about €500m from those with funds in Liechtenstein, which is thought to house between 3,000 and 6,000 trusts with Austrian beneficiaries.
Maria Fekter, Austria’s finance minister, sees this as a boost for tax justice, as well as a welcome top-up for the public coffers.
Her critics are not so sure. Both deals were opposed by the opposition Green and Freedom parties, which argue the agreements favour tax evaders at the expense of taxpayers.
“Not only do the deals preserve the anonymity of tax dodgers, they also mean that they pay, on average, less than people who kept their money legally in Austria. That is unfair,” says Werner Kogler, the Green’s budgetary spokesman, referring to the fact that while the top rate of income tax in Austria is 50 per cent, the deals set the rate for penalty payments at between 15 and 38 per cent.
Critics question the deals’ effectiveness, arguing that they contain serious loopholes, such as the Swiss agreement’s failure to deal with discretionary trusts and the lack of adequate oversight.
They also complain about slow implementation – the Swiss arrangement only came into force in January, eight months after it was signed. The deal with Liechtenstein will only take effect in 2014.
“The period between the signing and entering into force of both treaties is too long and gives people plenty of time to move their money elsewhere,” says Martina Neuwirth, international finance expert at the Vienna Institute for International Dialogue and Co-operation, a non-governmental organisation.
Defenders of the treaties say levels of evasion will be small. “I don’t think people are very likely to use the time to try and get around the deals,” says Bernhard Gröhs, partner at Deloitte Austria’s tax litigation practice.
“To do so, Austrians would have to move their money somewhere very far away, which is less convenient than having it in a neighbouring country. And banks in Switzerland have become wary about simply transferring money to Austria, with no questions asked, before the deadline.”
Mr Gröhs concedes Ms Fekter’s hopes that penalties will bring in €1.5bn “could well be optimistic”.
The treaties have also come under fire from those who say Austria’s insistence on a bilateral approach to tax evasion is hurting attempts to agree a multilateral solution based on automatic data exchange among all 27 EU member states. Austria and Luxembourg have long opposed data-sharing, fearing that this would undermine their own traditions of bank secrecy.
“The Austrian government is trying to have its cake and eat it,” says Ms Neuwirth. “On the one hand it is trying to bring in money from tax havens at a time of tight budgets and on the other it is trying to protect Austria’s own tradition of bank secrecy.”
However, because of gathering international pressure, last week Austria’s position finally began to shift.
After Luxembourg said it would consider easing its banking secrecy laws, Austria’s chancellor, Werner Faymann, said on April 9 that Austria was “ prepared to negotiate” on automatic data exchange, conceding Austria had not in the past fought vigorously enough against tax fraud. “We need to act faster and more aggressively,” he said.
However, Mr Faymann sought to reassure Austrian savers they would not be affected by insisting the data-sharing would be limited to foreigners’ offshore accounts in Austria. “I want to be clear that this is not about Grandma’s savings book,” he said.
If Austria does share data then analysts expect some outflows from its banking system, as the country is thought to be a popular destination for German and eastern European money.
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