EU tiptoes into Luxembourg tax row

(BRUSSELS) - European finance ministers agreed on Tuesday to break up a multi-pronged bid to force Austria and Luxembourg to open up banking secrecy laws in the fight against tax fraud.

A loose understanding to tighten up rules over exchange of information for the recovery of unpaid taxes in other member states was brokered when the European Union's Spanish presidency agreed to separate different strands.

The decision followed a stern warning by Luxembourg's Finance Minister Luc Frieden that EU partners were wasting their time trying to bully him into an all-encompassing accord as tax matters are reserved for member states.

The ministers "reached agreement on a general approach, pending the opinion of the European parliament, on a draft directive aimed at strengthening mutual assistance between member states in the recovery of taxes," a statement said.

The directive calls for "rules that are easier to apply, including as regards information held by banks and other financial institutions, and provide for more flexible conditions for requesting assistance, requiring the spontaneous exchange of information."

Finance ministers from the 25 other EU nations ultimately want to secure automatic exchange of account information between member states and third-party tax havens, some of which are British or Dutch-dependent territories.

The issue has acquired renewed political vigour as recession has wreaked havoc with governments' tax takes and attempts to recover every last penny available to shore up treasury finances are pursued across the board.

Amendments to EU laws on the taxation of savings interest, on cooperation between tax administrations and on tax recovery, as well as anti-fraud agreements with non-EU neighbours Andorra, Liechtenstein, Monaco, San Marino and Switzerland, have been on the agenda for years.

Supporters of the moves say the pressure on Luxembourg and Vienna will eventually become unbearable in the context of G20 moves to close tax loopholes around the globe.

But Frieden, who said the debate was "going nowhere," wants a "level playing field" with G20 nations on information exchange, and not simply an opening up of its books to larger rivals with more political clout.

He said the wider issue needs "an objective, serene debate on several aspects of taxation.

"All of that must be discussed, unless we want to see to see financial activity moved to Asia," he stressed.

The EU's outgoing taxation commissioner Laszlo Kovacs said there were "five delicate taxation issues on the agenda" which were seen by most backers as an integrated package.

However, "there was an agreement that we can split the package, in order to make faster progress," he said.

French Finance Minister Christine Lagarde said an "animated" debate over "desirable" law changes meant it was "unrealistic" not to break the problem up into smaller parcels, even if recovery was the "least controversial" to deal with.

Economic and Financial Affairs Council (ECOFIN)