EU to tighten rules against tax evasion

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(Xinhua)
Updated: 2008-11-14 09:01

BRUSSELS -- The European Commission proposed on Thursday to tighten rules concerning taxation on foreign interest income, aiming to close existing loopholes and avoid tax evasion.

Under current rules, banks and other financial institutions in the European Union (EU) have to report interest income received by taxpayers resident in other EU countries or levy a withholding tax on the income.

Laszlo Kovacs, EU commissioner for taxation and customs, said although the rules remain effective within the limits of its scope, they can be easily circumvented.

The commission proposal sought to better ensure the taxation of interest payments which are channeled through intermediate tax- exempted structures, like certain foundations or trusts.

It also proposed to extend the scope of the rules to income equivalent to interest obtained through investments in some innovative financial products as well as in certain life insurances products.

"The current scope of the directive needs to be extended, in order to meet our goal of stamping out tax evasion, which affects the national budgets and creates disadvantages for the honest citizens," Kovacs said.

EU finance ministers asked the Commission to make proposals for tougher rules after it was revealed that rich Germans and other European citizens had used loopholes in the current system to evade tax through accounts in tax heavens like Liechtenstein.

The Commission said tax fraud and tax evasion deprive EU member states of the essential financial resources and the problem is more acute today than ever as governments will be facing the first effects of the financial crisis.

While well-off individuals tend to benefit most from the existing loopholes in the EU rules, "the first victims of tax fraud and tax evasion are the least mobile workers and consumers who can face high taxation levels that the member states introduce to compensate for their losses," it said.