Amazingly, nine EU member states were reported by the European Commission as not using the information received when the European tax data sharing system Dac 2 was launched in 2017. Delano could not identify these countries nor find information about the current status.
The exchange of information is a radar to dissuade taxpayers from not reporting revenues
According to the European Court of Auditors (ECA), tax authorities were making, in general, little use of the massive amount of data they received, questioning the requirement for banks to aggregate such a large amount of data from every client.
Take advantage of poorly exchanged data at your own risk
Further, a recent audit from the ECA covering the period between 2014 and 2019 on five member states (Cyprus, Italy, Netherlands, Poland and Spain) revealed that the information collected by them lacked “quality, completeness and accuracy.”
During an interview in Kirchberg on 26 July 2023, Camille Seillès, secretary general at the Luxembourg Bankers’ Association (ABBL), explained that both processes--the automatic exchange of information and on-demand exchange of information--will continue to coexist as they complement each other. In his opinion, the automatic exchange acts as a screening tool to identify assets abroad that may not have been declared.
Under Dac 2 (the Directive on Administrative Cooperation 2), a government wishing to know more about an account abroad would have to file a bespoke request to the foreign tax authorities.
Seillès takes comfort of the dissuasive impact of the regulation on the behaviour of taxpayers as banks are actively informing their clients that they are exchanging information. “The exchange of information is a radar to dissuade taxpayers from not reporting revenues,” said Seillès.
GDPR and too much exchange of information
There is a fine balance to reach between the combat of tax evasion transparency and the protection of personal data as guaranteed by the EU’s General Data Protection Regulation (GDPR).
Before expending the reach and the details included in the exchange of information, Seillès wondered whether it would not be preferable to revisit the current common reporting standard, or CRS, a global standard for the automatic exchange of financial account information developed by the OECD.
Seillès noted that the CRS includes financial flows such as revenues in the forms of dividends or interest payments, sale proceeds on portfolios, in addition to the existence of accounts and the end-of-year balance.
By defining what is indispensable and limiting information that is automatically communicated to the existence of accounts and the yearly balance only, Seillès assessed that it would reduce the risk of a judge eventually ruling that the content of the exchange of information does not comply with the GDPR’s requirements.
Seillès stressed that the intention is not to reduce the scope of the overall regulation as the tax authorities have the means and the tools, given that they may demand additional information as appropriate. He is rather concerned that an adverse ruling forcing the regulation to backtrack would be a negative outcome with far-reaching political and financial consequences for EU member states and financial institutions.