Explanatory Memorandum to COM(2009)648 - Conclusion of the Cooperation Agreement with Liechtenstein to combat fraud and any other illegal activity to the detriment of their financial interests and to ensure exchange of information on tax matters - Main contents
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| dossier | COM(2009)648 - Conclusion of the Cooperation Agreement with Liechtenstein to combat fraud and any other illegal activity to the detriment ... |
|---|---|
| source | COM(2009)648  |
| date | 23-11-2009 |
On 10 December 2008, the Commission adopted a proposal for a Council Decision on the signing, on behalf of the European Community, of the Cooperation Agreement between the European Community and its Member States, of the one part, and the Principality of Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests as well as a proposal for a Council Decision on the conclusion, on behalf of the European Community, of the Cooperation Agreement between the European Community and its Member States, of the one part, and the Principality of Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests i.
This proposal was adopted following the authorization given by the Council on 7 November 2006.
Following the conclusions adopted by the ECOFIN Council on 10 February 2009, Liechtenstein is expected to encompass in the agreement with the European Union at least a similar scope of obligations as it had agreed with third Countries. The Council also mandated the Commission to obtain changes to ensure effective administrative assistance and access to information with regard to all forms of investments, in particular foundations and trusts.
Liechtenstein, followed by other countries, issued an official statement, by which it recognises the standard for cooperation under the OECD Article 26 of the Model Convention on income and capital (2005). Following the conclusions of the G20 of 2 April 2009, the inclusion of the standards of the OECD model is a logical step. The Council conclusions therefore need to be interpreted in this light. Such a standard should not be restricted to cases of tax fraud and tax evasion but should cover all exchanges of information, including for tax cooperation purposes.
In 2009, the Commission has, therefore, in close liaison with the Council, in particular through the work carried out in the framework of the EFTA Working Party and the Working Party on Tax Questions (direct taxation), negotiated with Liechtenstein several issues including:
- the global coverage of the Agreement needs to be extended to include tax cooperation in accordance with the Article 26 OECD standard;
- the general scope should be extended in a way to properly reflect OECD standards, specifying that assistance on request through exchange of information shall include information that is foreseeably relevant to the determination, assessment, enforcement and collection of taxes, the recovery and enforcement of tax claims or the investigation or prosecution of tax matters;
- tax evasion including the omission of submitting a legally required tax return should be covered and a clarification of what is meant by tax fraud and tax evasion is needed, in particular, to determine the scope for assistance concerning investigations;
- the drafting of the revised agreement should also better reflect the exact wording of the OECD Article 26 standard with regard to the limits to exchange of information;
- in order to guarantee full application of the standard of Article 26 of the OECD model, it appears necessary to define the powers which the administration of a requested partner has at its disposal; the parties must in particular ensure that their administrative authorities have the powers to obtain and provide information held by banks, companies, partnerships, trusts and foundations, in particular regarding ownership and beneficiaries in order to supply this information upon request;
- the Agreement should be revised to give an additional role to the Joint Committee with regard to monitoring and evaluation;
- the form and content of requests for assistance should be specified to integrate a description of the content of the request for assistance that mirrors provisions recently agreed by Liechtenstein with third countries;
- the Agreement should allow for its quick implementation and provide for a differentiated regime with provisional application of certain Union competences, namely as regards traditional own resources and certain aspects of information exchange provisions.
In the context of these negotiations, the Principality of Liechtenstein raised the main following issues:
- the context of the Agreement is for Liechtenstein characterized by its membership of the EEA and therefore by its participation in the Internal Market freedoms and its signed association agreements on the Schengen and the Dublin Acquis;
- equal treatment and non-discrimination are fundamental principles and, as such, should be applied by all Member States in their relations with Liechtenstein; it is also an objective for Liechtenstein to obtain equal treatment and non-discrimination with respect to both the other European third countries and the tax information exchange obligations under the Agreement;
- Liechtenstein preserves the possibility to conclude complementary bilateral tax cooperation agreements with individual Member States within their sphere of competence. Such agreements have already been concluded with some Member States.
The Commission has regularly presented progress reports on its negotiation with Liechtenstein to the Council.
On 9 June 2009, recalling the Council Conclusions of 10 February 2009, the Council urged the Commission to swiftly present the negotiating result on the anti-fraud agreement with Liechtenstein and noted the intention of the Commission to present negotiating directives for anti-fraud agreements with Monaco, Andorra, San Marino and Switzerland.
The discussions carried out within the Council working groups (EFTA Working Party and Working Party on Tax Questions - direct taxation) helped to prepare an informal revised draft; the Commission incorporated the requests and overcome the concerns of the Member States as far as possible. This draft was submitted to COREPER on 8 and 14 October 2009 for discussion.
At the ECOFIN Council, on 20 October, the Council concluded that it would come back to the issue in December.
The amended proposal takes into account these recent developments. In addition, it also takes into account the new provisions of the Treaty on the Functioning of the European Union, in particular with regard to the legal bases.
This Agreement should serve as a model for negotiating Anti-fraud agreements with other third Countries.
- Title of the Agreement and Article 1 - 'Objective'
The title and this Article are amended to reflect the extension of the objective of the Agreement (covering also assistance through exchange of information that is foreseeably relevant for the determination, assessment, enforcement and collection of taxes).
- Article 2 - 'General Scope'
This Article is amended to reflect the extension of the scope of the Agreement. To that end, Article 2(1)(c) has been added to take into account the Council conclusions of 10 February 2009 and the Liechtenstein commitment of 12 March 2009 to adopt the OECD standard of exchange of information in tax matters (Article 26 of the OECD Model Convention on Income and Capital).
Moreover, in Article 2(1)(a), the term “all” has been deleted before “the Parties”, as it does not bring any added value and in Article 2(1)(b), (e) and (f), the term “fraudulent” has been deleted.
A new definition of direct taxes has been drafted in Article 2(4)(e); this definition is in line with the definition of Article 3 of the OECD Model Agreement for exchange of information on tax matters.
Article 2(4)(b) and Article 2(4)(d) have been amended to cover the omission of correct declarations and the evasion of customs duties and indirect taxes in line with the definition in Article 2(4)(f) regarding the conduct contrary to the legislation covering direct taxes.
An additional definition of the person is added in Article 2(4)(g). This definition takes on board the definition proposed by the Swedish Presidency in the compromise for the draft directive on administrative cooperation in the field of taxation.
A new paragraph 5 is inserted in Article 2 to precise that the exchange of information is without regard to whether the person to whom the information relates is, or whether the information is held by, a resident of a Party, as well as what is meant by the authorities of the Parties. This is in line with Article 2 of the OECD Model Agreement for exchange of information on tax matters as well as with the obligations agreed by Liechtenstein with the United States of America (Article 2 of the USA/Liechtenstein Agreement i).
Finally, the omission to comply with a legal requirement to submit a tax return is foreseen (Article 2(4)(f)(vi)).
- Article 3 - “Minor cases”
This Article has been amended so as to abandon the threshold with regard to the exchange of information concerning tax matters.
- Article 4 - “Ordre public”
This Article has not been modified. However, it has to be pointed out that this provision has to be interpreted in a very restrictive way in order to preserve essential interests of one Party. It may not be interpreted in a way that it would allow to hinder the proper functioning of the Agreement.
- Article 5 - “Transmission of information and evidence”
Article 5(2)(b) has been amended to add the reference on Article 2(1)(c).
- Article 6 - “Confidentiality”
This Article has not been amended. This provision has to be read in the light of Article 21 regarding the use of information.
- Article 7 - “Relationships with other Agreements”
This Article is amended in order to make it clear that the Agreement has to be interpreted as providing minimum rules and that bilateral agreements (but also arrangements) may go beyond this minimum in so far as they entail more extensive cooperation in the field of administrative assistance.
- Article 8 - “Extent of Administrative Assistance”
This Article is amended so as to mention explicitly the administrative cooperation through the exchange of information in the field of the taxes covered by the Agreement.
- Article 9 - “Statute of limitations”
The last sentence is added so as to precise that the expiration of a statute of limitations for taxes of the requested Party shall not preclude this Party from obtaining and providing the requested information. This is in line with the obligations agreed by Liechtenstein with the United States of America (Article 7 i of the USA/Liechtenstein Agreement).
- Article 10 - “Powers”
In line with the Council conclusions of February 2009, this Article is revised in order to reach a similar scope of obligations as Liechtenstein agreed with the United States of America (Article 5(6)) and with the 2002 OECD Model Agreement for Exchange of information on tax matters.
Two footnotes have been inserted in order to indicate that establishments and foundations will be translated in German as Anstalten and Stiftungen.
A link is made with the new definition of the person in Article 2(4)(g).
- Article 11 - “Limits to exchange of information”
This Article is amended so as to fully take into account the OECD Article 26 Standard (paragraph 2). It is also amended to specify that a request for information shall not be refused on the ground that the tax liability giving rise to the request is contested by the taxpayer (new paragraph 3), in line with the obligations agreed by Liechtenstein with the United States of America (Article 7 i of the USA/Liechtenstein Agreement).
- Article 12 - “Costs and obligation to exhaust the usual sources of information”
The first paragraph has been replaced by a new provision on costs, which is in line with the 2002 OECD Model Agreement for exchange of information on tax matters (Article 9 according to which the “Incidence of costs incurred in providing assistance shall be agreed by the Contracting Parties” and commentary).
In the second paragraph concerning the obligation to exhaust the usual sources of information, the exception when recourse to such means would give rise to disproportionate difficulties has been added.
- Article 14 - “Request for information”
The new wording of this Article is in line with the obligations agreed by Liechtenstein with the United States of America (Article 5 of the USA/Liechtenstein Agreement) which are inspired by the 2002 OECD Model Agreement for exchange of information on tax matters.
- Article 18a- “Presence of authorised staff of the authority of the requesting Party with regard to tax cooperation”
These new provisions concerning tax cooperation are inserted following the extension of the scope of the Agreement (new Article 2(1)(c)). This is in line with the 2002 OECD Model Agreement for exchange of information on tax matters (Article 6 and commentary, in particular paragraphs 66 to 70) and is inspired by the obligations agreed by Liechtenstein with the United States of America (Article 6 of the USA/Liechtenstein Agreement).
- Article 20a - “Form and content of the request for assistance in tax matters”
In line with the Council conclusions of February 2009, this Article is revised in order to reach a similar scope of obligations as Liechtenstein agreed with the United States of America (Article 5 i of the USA/Liechtenstein Agreement).
This Article should be interpreted in the light of the joint declaration regarding this provision, in particular where the identity of the accountholder is unknown.
- Article 21 – “Use of information”
This Article has not been modified. However, it should be noted that judicial proceedings under this Article shall mean both civil and criminal proceedings.
- Article 24 – “Recovery”
In addition to the explanations provided for in the explanatory memorandum of the initial proposals adopted on 10 December 2008, it is worth indicating that the provision of Article 24 i are without prejudice, where necessary, to additional requirements under domestic law.
- Article 25 - “Relationship with other Agreements”
As pointed out under Article 7, this Article is also amended in order to make it clear, in a complementary way, that the provisions of title III do not prevent more extensive cooperation on the basis of other instruments, in particular bilateral Agreements.
- Article 31 - “Searches and seizures”
This Article has not been amended. However, it should be noted that the list of conditions for the admissibility of requests foreseen in this Article is exhaustive.
- Article 32 - “Request for banking and financial information”
Article 32 i has been redrafted in order to better reflect the OECD standard. In this paragraph, “Party” shall mean requested Party.
In addition to the explanations provided for in the explanatory memorandum of the initial proposals adopted on 10 December 2008, it has to be pointed out that the limits for rejecting a request for information should not be different between administrative assistance and mutual legal assistance.
- Article 33 - “Controlled deliveries”
This Article has not been modified. However, it should be noted that this provision has to be read in the light of Article 8 i.
- Article 38 - “Joint Committee”
Article 38 i and i have been slightly amended, in particular in order to clarify that decisions, to be taken by unanimity, cover both practical modalities for the implementation of the Agreement in addition to decisions foreseen in another Article in the Agreement.
Article 38 i specifies what is meant by all the Parties.
- Article 41 - “Entry into force”
Taking into account the precedent with the Swiss Confederation, a provision is inserted so as to make some specific provisions of the Agreement (Title I and Title II in so far as they regard income covered by the taxation on savings and information exchange and mutual assistance on fraud and any other illegal activity in the area of traditional own resources and Community funds) applicable from the moment the Agreement has been signed by the Parties and the Principality of Liechtenstein has notified its instrument of ratification.
The Union legal order allows for such provisional application.
Traditional own resources have to be understood in the light of Council Decision of 7 June 2007 on the system of the European Communities' own resources i (this concept covers the list under in Article 2(1)(a), but not VAT).
- Article 43 -“Temporal application”
This Article is amended to specify temporal application rules with regard to the assistance through exchange of information for the determination, assessment, enforcement and collection of direct and indirect taxes (new Article 2(1)(c)).
The wording of Article 43(c) is inspired by Article 15 of the 2002 OECD Model Agreement for exchange of information on tax matters. This new provision aims at a temporal application regime which is compatible with the need of a predictable legal framework for existing client relationships. If the Agreement were to be signed before the end of 2009, the first tax year concerned would be 2010 and the first exchange of information based on this specific tax year would be made in 2011.
The Commission modifies its proposal as follows: