Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee - Promoting Good Governance in Tax Matters
Date: 2009-04-28
Institutions: European Commission
Subjects: economic recession, exchange of information, fiscal policy, innovation, national budget, new technology, tax evasion, tax system

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.4.2009 
COM(2009) 201 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Promoting Good Governance in Tax Matters 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Promoting Good Governance in Tax Matters 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

4. 

5. 

Introduction .................................................................................................................. 4 

Elements of good governance in the tax area............................................................... 5 

Existing tax cooperation within the EU ....................................................................... 5 

International tax cooperation discussions .................................................................... 6 

EU international policy on good governance in the tax area ....................................... 7 

Commitments made at EU level .................................................................................. 7 

Ongoing actions ........................................................................................................... 8 

How to strenghthen the principle of good governance in the tax area within the EU 
and internationally........................................................................................................ 9 

Conclusion.................................................................................................................. 13 

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1. 

INTRODUCTION 

With  the  current  financial  and  economic  crisis,  national  budgets  and  tax  systems  are  under 
increased  threat  and  the  need  for  international  tax  cooperation  and  common  standards  (i.e. 
"good governance in the tax area") has become a regular feature of international discussions. 

Globalisation, or the increasing economic integration of markets that is being driven by rapid 
technological change and policy liberalisation, is providing great opportunities in the world. 
Many  countries  draw  a  massive  dividend  from  this  phenomenon.  For  the  EU,  it  has  been 
estimated  to  account  for  at  least  a  fifth  of  Europe’s  income  gains  since  World  War  II1.  But 
there  are  also  social  and  economic  downsides  to  globalisation.  Countries  can,  for  example, 
become more vulnerable to economic turmoil, as is evident at present, and to tax avoidance 
and evasion. In a world where money moves freely, "tax havens", and insufficiently regulated 
international  financial  centres  that  refuse  to  accept  the  principles  of  transparency  and 
information  exchange  can  facilitate  or  even  encourage  tax  fraud  and  avoidance,  negatively 
affecting the tax sovereignty of other countries and undermining their revenues. According to 
an  OECD  estimate  at  the  end  of  2008,  the  world's  tax  havens  have  attracted  between  $5 
trillion  and  $7  trillion2  in  assets,  although  the  degree  of  secrecy  surrounding  these  accounts 
makes  it  difficult  to  determine  exactly  just  how  much  is  located  in  these  individual 
jurisdictions.  With  national  budgets  and,  therefore,  social  and  other  policies  under  severe 
strain this is an extremely serious problem. 

Rejecting  globalisation  and  closing  up  markets  because  of  these  negative  effects  would  be 
counterproductive.  From  the  EU  perspective,  a  viable  option,  therefore,  is  to  manage  the 
effects better by means of agreements with third countries on as broad a geographical basis as 
possible  covering  common  standards  and  cooperation,  including  in  tax  matters.  Fair  and 
efficient  tax  systems  not  only  play  an  essential  role  in  ensuring  a  level  playing  field  for 
economic  relations,  trade  and  investment  but  also  provide  the  financial  basis  for  all  public 
spending. This translates as good governance in the  tax area, which  is not only an essential 
means  of  combating  cross-border  tax  fraud  and  evasion  but  can  also  strengthen  the  fight 
against  money  laundering,  corruption  and  the  financing  of  terrorism.  There  is  clearly  a 
growing global consensus on the need for a continuing co-ordinated response to this problem, 
consisting of complementary initiatives in the areas of financial regulation and taxation. 

The G20 countries, in their action plan of November 2008, agreed to work on the international 
application of rules of transparency in financial matters and administrative cooperation in the 
tax  area.  EU  Finance  Ministers,  in  the  paper  that  they  presented  to  the  European  Council 
meeting in December 20083, called for the continuation of the fight against illicit finance risks 
arising from non-cooperative jurisdictions, and against tax havens. In their contribution to the 
G20  Ministerial  and  Governors'  meeting  of  14th  March  2009,  EU  Finance  Ministers 
underlined  the  "need  to  protect  the  financial  system  from  non-transparent,  non-cooperative 
and  loosely  regulated  jurisdictions,  including  offshore  centres",  asked  for  a  "toolbox  of 
sanctions"  and  stressed  the  need  to  strengthen  "action  to  achieve  international  good 

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“Globalisation: Trends, Issues and Macro Implications for the EU”, DG-ECFIN Economic Paper, No. 
254 (Brussels: European Commission, 2006). 
Remarks  by  Angel  Gurría,  OECD  Secretary-General,  at  the  Conference  on  the  Fight  Against 
International Tax Evasion and Avoidance, Paris, France, 21 October 2008. 
Council document 16095/1/08 REV 1. 

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governance in the tax area (transparency, exchange of information and fair tax competition)". 
The European Council of 19-20th March confirmed this line. At the G20 Leaders summit in 
London  (April  2,  2009),  the  Leaders  agreed  “to  take  action  against  non-cooperative 
jurisdictions, including tax havens", they declared themselves to be "ready to deploy sanctions 
to protect [their] public finances and financial systems", and that "the era of banking secrecy 
is  over".  In  the  run-up  to  the  G20  meeting,  many  jurisdictions  reacted  by  indicating  their 
willingness  to  apply  international  standards  of  transparency  and  information  exchange  from 
now on 4 

This  Communication  aims  to  identify  the  particular  EU  contribution  to  good  governance  in 
the area of direct taxation. It considers:  

•  how good governance could be improved within the EU, 

•  the  particular  tools  that  the  European  Community  and  EU  Member  States  may 

have at their disposal to promote good governance internationally, and 

•  the  scope  for  more  co-ordinated  action  by  EU  Member  States,  so  as  to  support, 
streamline  and  complement  international  action  taken  in  other  fora  such  as  the 
OECD and the UN. 

2. 

ELEMENTS OF GOOD GOVERNANCE IN THE TAX AREA 

2.1. 

Existing tax cooperation within the EU 

EU  Finance  Ministers,  meeting  in  Council  (ECOFIN)  on  14  May  2008,  defined  good 
governance in the tax area as meaning the principles of transparency, exchange of information 
and fair tax competition.  

Within  the  Internal  Market  there  are  common  rules,  including  on  company  law  and  on 
taxation5,  that  are  designed  to  allow  companies  and  individuals  to  derive  maximum  benefit 
from  open  borders.  These  rules  are  having  beneficial  effects,  in  particular  in  reducing 
compliance costs and encouraging cross-border investment. But the increasing integration of 
economies  in  the  Internal  Market  is  also  creating  new  challenges.  Open  borders  can,  for 
example, put tax systems under pressure and make it more difficult to raise an adequate level 
of revenue to finance public expenditure. 

Member States are, under Community law, largely free to design their direct tax systems in a 
way that best meets their domestic policy objectives and requirements. However, during the 
last decade, they have reached common agreement on several ways of tackling the erosion of 
tax  bases  and  investment  allocation  distortions.  In  doing  so,  they  have  acknowledged  that 
individual  national  and  bilateral  measures  can  only  partly  address  tax  erosion  problems  and 
that EU-wide cooperation is vital. Member States have agreed on several measures which are 
designed to promote better governance in the tax field within the EU, as follows: 

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http://www.oecd.org/dataoecd/38/14/42497950.pdf 
http://ec.europa.eu/internal_market/score/relateddocs/index_en.htm 

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•  Administrative  cooperation  including  information  exchange  -  A  "Mutual  Assistance" 
Directive6  provides  for  information  exchange  on  direct  tax  between  tax  authorities.  A 
Directive on recovery of tax claims7 establishes a regime whereby one Member State may 
request  assistance  from  another  in  the  recovery  of  claims  relating  to  taxes,  duties  and 
levies.  The  Savings  Taxation  Directive8  enables  tax  administrations  to  exchange 
information automatically, although it applies only to the interest income from savings of 
individuals and three Member States have been authorised to apply a withholding tax on a 
transitional basis.  

•  Harmful  tax  competition  -  The  legal  instruments  on  administrative  cooperation  are 
complemented  by  a  political  agreement  between  Member  States  to  tackle  harmful  tax 
competition  in  the  area  of  business  taxation  under  a  peer  review  process.  The  "Code  of 
Conduct  for  business  taxation"9  defines  harmful  tax  measures  as  measures  (including 
administrative  practices)  which  affect  or  may  affect  in  a  significant  way  the  location  of 
business  activity  in  the  Community,  and  which provide  for  a  significantly  lower  level  of 
taxation than those that generally apply in the Member State concerned. Under the Code, 
which applies both to Member States and to their dependent and associated territories, over 
400  business  taxation  measures  have  been  assessed  and  over  100  of  these,  being 
considered harmful, have been removed or amended.  

•  State aids - In addition, EU state aid policy as applied to fiscal state aids10 has contributed 
to  removing  distortions  of  competition  resulting  from  specific  business  tax  regimes 
introduced by individual Member States. 

•  Transparency - These tax initiatives are complemented by the existence of company laws 

and rules that ensure corporate and financial transparency.  

2.2. 

International tax cooperation discussions  

The work in the EU on improving tax cooperation reflects many of the underlying principles 
that  have  driven  OECD  activity  against  harmful  tax  competition  over  several  years.  The 
OECD work is twofold: 

•  It aims to identify and dismantle the preferential tax regimes of its 30 member countries, 
using criteria that are close (although with a narrower scope) to those in the EU's Code of 
Conduct for business taxation. 

•  It  has  also  been  extended  to  non-OECD  countries,  including  a  number  of  so-called  "tax 
havens"11,  and  political  commitments  were  obtained  from  35  of  these  jurisdictions  to 

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Council Directive 77/799/EEC of 19 December 1977, as amended by Directive 2004/56/EC of 21 April 
2004. 
Council Directive 2008/55/EC of 26 May 2008. 
Council Directive 2003/48/EC of 3 June 2003 
http://ec.europa.eu/taxation_customs/taxation/company_tax/harmful_tax_practices/index_ 
en.htm#code_conduct 
(i)  Commission  notice  98/C  384/03,  Official  Journal  C  384  of  10/12/1998  p.  3;  (ii)  "Report  on  the 
implementation of the Commission notice on the application of the state aid rules to measures relating 
to direct business taxation", C(2004) 434 of 9/.2/2004. 
As  defined  in  the  1998  report  "Harmful  tax  competition:  an  emerging  global  issue".  The  OECD  lists 
four key factors to determine whether a jurisdiction is a tax haven – i) the jurisdiction imposes no or 

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establish  genuine  cooperation  with  OECD  members  on  transparency  and  exchange  of 
information  in  tax  matters.  Given  the  expectation  that  the  G20  meeting  of  2  April  2009 
would  draw  up  a  list  of  jurisdictions  having  made  insufficient  progress  in  the 
implementation of the widely agreed international tax standards developed by the OECD, . 
several  jurisdictions  have  also  recently  made  commitments  to  the  standards,  including 
Switzerland,  Austria,  Belgium,  Luxembourg,  Hong  Kong,  Macao,  Singapore,  Chile, 
Andorra, Liechtenstein, and Monaco. These commitments are essentially to adhere to the 
OECD international standard, which requires exchange of information on request in all tax 
matters  for  the  administration  and  enforcement  of  domestic  tax  law,  without  regard  to  a 
domestic  interest  requirement  or  bank  secrecy  for  tax  purposes  in  the  requested 
jurisdiction.  The  OECD  standard  also  provides  for  extensive  safeguards  to  protect 
confidentiality of the information exchanged Immediately following the G20 meeting, the 
OECD  reported  on  the  implementation  of  the  internationally  agreed  tax  standard  by  the 
jurisdictions surveyed by the OECD Global Forum. 

The  Commission  welcomes  the  important  commitments  that  have  been  made  recently,  and 
looks forward to their implementation. It will propose coordinated action by Member States to 
ensure an appropriate follow-up, where this is in the interest of the EU.. The "Declaration on 
Financing for Development"12 of the UN follow-up International Conference on Financing for 
Development  to  review  the  implementation  of  the  Monterrey  Consensus  contains  strong 
commitments  towards  tax  reform,  advocating  efforts  to  enhance  tax  revenues  through 
modernised  tax  systems  and  more  efficient  tax  collection,  to  broaden  the  tax  base  and  to 
combat tax evasion effectively. 

3. 

EU INTERNATIONAL POLICY ON GOOD GOVERNANCE IN THE TAX AREA 

3.1. 

Commitments made at EU level 

The EU policy on good governance in the tax area has evolved over the years on the basis of a 
series of Commission initiatives13, leading to the adoption of conclusions on good governance 
in the tax area by EU Finance Ministers meeting in the Council (ECOFIN) on 14 May 2008. 
The ECOFIN recognised the need to promote, on as broad a geographical basis as possible, 
the principles of good governance in the tax area. As a result it requested that a provision on 
good  governance  in  the  tax  area  be  added  to  relevant  agreements  that  are  concluded  by  the 
Community  and  its  Member  States  with  third  countries  or  third-country  groupings.  The 
objective is not to target tax havens per se but to reach agreement with as many third countries 
as possible on common principles of cooperation and transparency. 

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only nominal taxes; ii) there is a lack of transparency; iii) there are laws or administrative practices that 
prevent  the  effective  exchange  of  information  for  tax  purposes  with  other  governments  on  taxpayers 
benefiting from the no or nominal taxation; iv) there is an absence of a requirement that the activity be 
substantial.  
Doha Declaration, 29 November to 2 December, 2008. 
Communications on Preventing and Combating Corporate and Financial Malpractice (COM(2004)611), 
on  Caribbean  countries  (COM(2006)86),  on  Pacific  (COM(2006)248)  countries,  on  Hong-Kong  and 
Macao 
(COM(2006)421  and  on  EU 
competitiveness (COM(2006)567). 

(COM(2006)648,  on  Governance  and  Development 

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Moreover, the ECOFIN, in its submission to the European Council in December 200814, gave 
an extra impetus to this effort by agreeing, in line with the work carried out at international 
level  in  various  fora,  to  continue  to  fight  against  illicit  finance  risks  arising  from  non-
cooperative jurisdictions, and to fight against tax havens. 

3.2. 

Ongoing actions 

The  EU  has  taken  a  number  of  measures  in  different  areas  to  ensure  that  third  countries 
adhere to good governance principles in the tax area or to related principles. 

Savings tax - Measures that are the same or equivalent to those laid down in the EU Savings 
Taxation  Directive  apply  in  a  number  of  third  countries15  and  dependent  and  associated 
territories of Member States, some of which were previously identified by the OECD as tax 
havens.  The  Commission  has  also,  on  the  basis  of  a  mandate  from  the  ECOFIN,  conducted 
exploratory  talks  with  Hong  Kong,  Macao  and  Singapore  on  the  application  of  provisions 
equivalent  to  those  in  the  Savings  Taxation  Directive.  These  have  not  yet  resulted  in  the 
opening of any formal negotiations. 

Code  of  Conduct  -  When  adopting  the  EU  Code  of  Conduct  for  business  taxation,  EU 
Member  States  committed  themselves  both  to  ensuring  that  the  principles  of  abolishing 
harmful tax competition are applied also in Member States' dependent or associated territories 
and to promoting these principles among third countries. The latter issue is part of the 2009 to 
2010 work programme of the EU Code of Conduct group. 

EEA  and  Switzerland  -  The  EU  has  close  relations  with  the  countries  in  the  European 
Economic Area (EEA) (Iceland, Liechtenstein and Norway) and with Switzerland. The body 
of EU law relating to the internal market applies directly to the countries in the EEA, while 
rules equivalent to EU state aid rules are contained in the EEA agreement and enforced by the 
EFTA  Surveillance  Authority.  Similar  rules  apply  to  Switzerland  under  the  1972  EU-
Switzerland Free Trade Agreement. This limits the scope for distortive tax regimes in those 
countries  and,  in  fact,  the  Commission  has  recently  challenged  some  Swiss  business  tax 
regimes  granting  benefits  that  it  regards  as  state  aids.  The  ECOFIN  Council  has  urged 
Liechtenstein to deepen its cooperation with the EU regarding administrative and judicial tax 
cooperation  and  the  fight  against  fraud,  and  negotiations  on  a  new  EU-Liechtenstein  anti-
fraud  agreement  are  ongoing,  including  on  the  issue  of  information  exchange  for  direct 
taxation. The recent commitment of Liechtenstein to the OECD standards of transparency and 
information exchange should give new impetus to these negotiations. 

European  Neighbourhood  Policy  -  A  number  of  Action  Plans  concluded  with  countries 
covered  by  this  Policy  include  general  references  to  cooperation  in  tax  matters.  Many  also 
make specific reference to the principles of transparency, exchange of information and to the 
Code of Conduct for business taxation. The Action Plans are tools for economic and political 
cooperation  between  the  EU  and  partner  countries,  carrying  to  a  further  stage  the 
commitments and objectives contained in Partnership and Cooperation Agreements.  

Enlargement policy - Enlargement policy requires candidate and potential candidate countries 
gradually to transpose EU legislation into their national laws, including in tax matters. Upon 

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Council document 16095/1/08 REV 1. 
Switzerland, Liechtenstein, San Marino, Monaco and Andorra. 

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their accession to the EU, candidate countries are required to implement fully the entire EU 
body of law; in this regard, good governance is one of the areas the enlargement strategy aims 
to address at an early stage of the pre-accession process.  

Implementation of the Council conclusions of May 2008 - The Commission has commenced 
negotiations with a number of third countries on a provision concerning good governance in 
the tax area as agreed by the ECOFIN Council in its conclusions of May 2008. This process 
has  just  started,  and  results  are  expected  in  the  near  future.  The  Commission  welcomes  the 
positive reaction of some third countries. However, the case of those jurisdictions that have so 
far rejected this idea must also be examined. 

Development  Cooperation  policy  -  The  Commission  has  provided  additional  support  to 
developing  countries  that  are  willing  to  commit  to  the  principles  of  good  governance, 
including in the  tax  area. The European Neighbourhood and Partnership (ENP) Governance 
Facility, based on Articles 2(1) and 7 of the ENP Instrument, provides funding, in addition to 
national  allocations,  to  those  partner  countries  that  are  assessed  to  have  made  the  most 
progress in implementing the governance-related objectives of their agreed reform agenda as 
set out in their ENP Action Plans (which contain both general and specific commitments on 
governance-related  reforms).  An  incentive  is  also  now  provided  under  the  10th  European 
Development  Fund  (EDF)  (covering  the  years  2008  to  2013)  through  the  Governance 
Initiative,  whereby  the  EU  offers  additional  funding  to  support  governance  dialogue  and 
reform,  including  in  the  tax  area.  Countries  eligible  for  development  aid  which,  after 
assessment based on the elaboration of a governance profile, undertake detailed commitments 
(Governance Action Plan), may receive an additional allocation depending on the quality of 
their commitment. A number of Caribbean and Pacific countries  have  now  undertaken  such 
commitments16  but  others  have,  to  date,  refused  or  have  not,  at  any  rate,  yet  taken  up  this 
offer17.  A  number  of  Overseas  Countries  and  Territories  (OCTs)  for  which  Member  States 
have responsibilities have made commitments to the OECD on standards of transparency and 
exchange of information. 18  

4. 

HOW  TO  STRENGTHEN  THE  PRINCIPLE  OF  GOOD  GOVERNANCE  IN  THE  TAX  AREA 
WITHIN THE EU AND INTERNATIONALLY 

Promoting  good  governance  in  the  tax  area  must  involve  a  combination  of  better  tax 
governance within the EU and actions aimed at third countries. Good governance in the 
tax area within the EU will strengthen Member States' efforts in fighting against tax fraud. At 
the  same  time,  the  argument  for  other  jurisdictions  to  engage  in  efficient  and  effective 
administrative cooperation with the EU will be reinforced. In any event, under equal treatment 
rules, a Member State should provide to another Member State the level of cooperation that it 
has accepted in relation to a third country. 

The Commission believes that the following actions are needed :  

Existing internal initiatives being taken 

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http://ec.europa.eu/development/geographical/methodologies/strategypapers10_en.cfm 
Antigua and Barbuda, the Bahamas and Liberia have not undertaken commitments on tax issues under 
the 10th European Development Fund. 
See footnote 10. 

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The Commission calls on the Council to adopt as soon as possible the Commission proposals 
referred  to  below  in  points  i),  ii)  and  iii),  and  to  give  appropriate  priority  to  the  action 
proposed in point iv). 

i) 

ii) 

iii) 

The  Commission  presented  a  proposal19  in  February  2009  to  replace  the  current 
Mutual  Assistance  Directive.  The  proposal  would,  besides  creating  new  practical 
tools to  enhance administrative cooperation  (common  forms,  formats,  channels  and 
organisation), introduce two important new elements that the Commission considers 
indispensable  to  reinforce  EU  action  at  international  level  against  tax  fraud  and 
evasion.  First,  it  would  introduce  a  most  favoured  nation  clause  whereby  Member 
States would be obliged to provide to another Member State the level of cooperation 
that they have accepted in relation to a third country. Second, and most importantly, 
the  proposal  would  prohibit  Member  States  from  invoking  bank  secrecy  for  non 
residents as a reason for refusing to supply information concerning a taxpayer to his 
or her Member State of residence.  

Together  with  the  Mutual  Assistance  proposal,  the  Commission  also  presented  a 
proposal20 to replace the existing Directive on recovery of tax claims. The proposal 
aims  to  increase  the  efficiency  of  assistance  so  as  to  enhance  tax  administrations' 
capacity to recover unpaid taxes, and thus contribute to the fight against tax fraud. 

The  Commission's  proposal  presented  in  2008  to  amend  the  Savings  Directive21 
seeks  to  extend  the  coverage  of  the  Directive  to  certain  interest  payments  to  EU 
residents  which  are  channelled  through  intermediate  tax-exempted  structures 
established  in  non-EU  countries.  The  proposal  also  makes  other  suggestions  on 
improvements to the savings tax measures. Rapid adoption of all the changes would 
ensure  a  more  effective  system.  The  Commission  calls  on  the  Council  to  reach  a 
political  agreement  rapidly  on  amendments  to  be  made  to  the  directive.  This  will 
ensure  that  the  application  of  these  improvements  to  the  working  of  the  savings 
measures  can  be  put  to  the  other  jurisdictions  that  apply  the  same  or  equivalent 
measures as quickly as possible. 

iv) 

Work on the standstill and rollback of harmful business tax measures in EU Member 
States under the Code of Conduct for business taxation should continue. 

EU-level arrangements with third countries  

v) 

The  Council  should  give  the  issue  of  good  governance  in  the  tax  area 
appropriate political priority The negotiating of provisions on good governance in 
the  tax  area  with  third  countries  within  general  agreements  should  be  improved  by 
the  following  measure  :  a  reference  to  good  governance  in  the  tax  area  should  be 
mentioned as early as possible in the process, e.g. in the negotiating directives given 
to the Commission by the Council, while having regard to the specific nature of the 
agreement. 

19 
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21 

COM (2009) 29 of 2 February 2009. 
COM (2009) 28 of 2 February 2009. 
COM (2008) 727 of 13 November 2008. 

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vi) 

vii) 

viii) 

ix) 

x) 

In  cases  where  it  is  known  in  advance  that  discussion  of  the  principles  of  good 
governance  in  the  tax  area  will  be  contentious,  or  where  such  principles  are  not 
understood,  political  dialogues  between  the  EU  and  third  countries  should  address 
the  issue  in  advance  of  trade  related-negotiations,  so  as  to  facilitate  those 
negotiations.  

The Council should give the Commission sufficient flexibility in its negotiations on 
wording,  while  preserving  the  substantial  elements  and  objectives  of  good 
governance,  so  as  to  be  able  to  negotiate  solutions  that  best  fit  the  specific  case  of 
each country.  

The  content  of  such  agreements  should,  where  appropriate,  also  include 
provisions similar to those applicable within the EU under State aid rules. This 
would  improve  fair  competition  between  Member  States  and  third  countries  in  the 
area of business taxation. It should, for example, make it possible to tackle distortive 
practices unduly detrimental to EU Member States' budgets and businesses, and not 
necessarily addressed by WTO rules. 

Specific  agreements  in  the  tax  area  containing,  if  appropriate,  provisions  on 
transparency  and  exchange  of  information  for  tax  purposes  at  EU  level  could  be 
considered,  to  accelerate  the  process  of  implementing  commitments  to  greater 
transparency and exchange of information made by certain jurisdictions. 

The  Savings  Taxation  Directive  includes  a  special  arrangement  for  three  Member 
States  to  charge  EU-resident  foreign  account-holders  a  withholding  tax  instead  of 
applying  information  exchange  as  other  countries  do.  Liechtenstein,  Switzerland, 
Monaco, Andorra and San Marino have savings tax agreements with the EU that also 
provide  for  a  withholding  tax  instead  of  information  exchange.  The  Directive 
envisages that all EU Member States will eventually move to automatic information 
exchange  in  an  arrangement  that  depends  on  the  adoption  by  the  above-mentioned 
third countries of the 2002 OECD standards on information exchange. It is important 
to  promote  this  move  towards  a  wider  use  of  information  exchange  by  the  third 
countries  in  question  in  order  to  achieve  the  overall  aim  of  the  Directive.  Recent 
commitments  by  the  remaining  four22  of  the  five  countries  named  above  to  the 
OECD standards of transparency and information exchange signals that the moment 
has come to assess whether the transitional period should now come to an end, with 
all EU Member States moving to automatic exchange of information.  

There is also a clear need to carry forward the discussions with other third countries, 
in particular Singapore, Hong-Kong and Macao, in the light of the new consensus on 
transparency  and  exchange  of  information,  to  explore  with  these  jurisdictions  the 
application  of  appropriate  equivalent  measures  to  those  contained  in  the  savings 
directive. 

xi) 

As regards the Code of Conduct for Business Taxation, the Commission believes that 
the  Council  Group  should  develop  a  coherent  policy  of  coordinated  action  toward 
third  countries  engaging  in  harmful  business  tax  practices,  such  as  by  adopting  a 
common  approach  to  the  application  of  anti-abuse  measures.  This  should  be  a 

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priority  when  implementing  the  Group's  work  programme  adopted  by  the  EU's 
Finance Ministers in December 2008 

Development cooperation incentives 

xii) 

xiii) 

The  coherence  between  EU  financial  support  and  provision  of  access  to  EU 
markets  to  particular  countries  and  their  level  of  cooperation  with  the 
principles of good governance in the tax area should be considered.  

The Commission believes that efforts at EU level to promote good governance in the 
tax  area  in  third  countries  eligible  for  development  aid  should  be  enhanced  by  the 
following actions: 

•  Monitoring, under the Mid-Term Reviews (MTR) of aid programmes, the state of 
play  of  good  governance,  so  as  to  be  able  to  take  appropriate  measures  when 
relevant;  more  specifically,  in  the  context  of  the  10th  EDF  MTR;  assessing  the 
implementation  of  commitments  on  good  governance  in  the  tax  area  that  have 
been  made  by  some  countries;  considering  a  reallocation  of  funds  towards 
countries that are implementing satisfactorily their commitments; and, conversely, 
considering  a  cancellation  of  funds  earmarked  for  those  countries  that  did  not 
implement their commitments. 

•  Provision  of  the  necessary  technical  assistance  to  help  countries  to  meet  their 
commitments  on  good  governance  in  the  tax  area.  If  a  country  so  requests, 
technical  assistance  could  also  be  provided  for  the  design  of  an  efficient  tax 
system which would allow the country to mobilise better its available resources.  

•  Proposing the inclusion of a specific provision related to good governance in the 

tax area under the review of the Cotonou agreement. 

The Commission also intends to consider the feasibility of introducing an additional 
criterion  in  the  eligibility  evaluation  for  the  allocation  of  funds  under  the  current 
external  instruments  of  the  Community  that  would  be  linked  to  the  application  by 
third countries of the principles of good governance in the tax area. Furthermore, the 
possibility,  under  the  next  Financial  Perspectives,  of  additional  funding  for 
cooperative jurisdictions could be evaluated, for instance for technical assistance or 
for secondment of experts. 

The EU is a major donor. The Commission believes that policy coherence in relation 
to  third  countries  is  essential  for  the  purpose  of  developing  the  principles  of  good 
governance  in  the  tax  area.  EU  Member  States,  under  their  bilateral  assistance 
programmes,  must,  therefore,  take  measures  similar  to  those  indicated  above.  EU 
coordination  at  country  level  will  be  enhanced  with  a  view  to  ensuring  maximum 
synergy. The EU calls on other donors also to improve the coherence of their policies 
and will seek a more coordinated approach between donors in this respect. 

xiv) 

xv) 

International tax policy coordination 

xvi) 

The extent of coherence between the principles of good governance in the tax area 
and  Member  States'  own  tax  policies,  including  bilateral  tax  treaties  with  third 
countries,  should  also  be  examined.  It  would  be  important  to  ensure  that  Member 

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States do not, through their bilateral tax treaties, open up new opportunities for tax 
avoidance  of  other  Member  States'  tax  systems  or  for  circumvention  of  EU 
directives.  At  the  same  time,  the  existence  of  good-governance  obligations  in  EU-
level agreements with third countries would provide bargaining strength for Member 
States in their bilateral negotiations with those countries. 

xvii)  Member States should also establish a more unified approach towards third countries 
linked to whether or not those countries apply the principles of good governance in 
the  tax  area.  For  instance,  a  third  country  implementing  these  principles  could  be 
removed from Member States' national "blacklists" so as not to be subjected to anti-
abuse  measures  in  relation  to  the  tax  practices  concerned.  Conversely  jurisdictions 
not  implementing  in  a  satisfactory  way  key  aspects  of  good  governance  in  the  tax 
area  applied  by  EU  Member  States  could  be  subjected  to  coordinated  counter 
measures.  For  instance,  the  G20  Leaders  have  agreed  to  develop  a  toolbox  of 
effective counter measures to be further considered23. The Commission believes that 
the  content  and  eventual  use  of  such  a  toolbox  should  be  the  subject  of  discussion 
with the Member States to take into account the particular rules and practices of the 
EU. 

xxiii)  The Commission believes that better coordination of EU Member States' positions in 
discussions at the OECD, G20 and UN on international good governance in the tax 
area  is  necessary  to  ensure  greater  leverage  in  dealings  with  non-cooperative 
countries. 

5. 

CONCLUSION 

The European Union and its Member States face serious challenges in addressing the current 
economic and financial crisis. The crisis has exacerbated concerns about the sustainability of 
tax systems in the face of globalisation. The promotion of good governance in the tax area on 
as  broad  a  geographical  basis  as  possible  is  now  recognised  to  be  the  appropriate  way  of 
addressing  these  concerns.  It  balances  the  tax  sovereignty  of  individual  countries  with  the 
legitimate protection of tax revenues. 

Accordingly, the EU and its partners have a strong common interest at this time in promoting 
tax cooperation and common standards on as wide a geographical basis as possible. The time 
is  now  right  for  Member  States  and  third  countries  to  work  together  and  to  encourage  and 
support the move that has now started towards a broader acceptance of international standards 
of tax co-operation 

This Communication presents for consideration a series of steps to promote good governance 
in  the  tax  area,  entailing  action  both  within  and  outside  the  EU  and  both  at  EU  and  at 
individual Member State levels. The Commission believes that: 

•  if good governance in the tax area is improved internally, EU Member States will 
benefit and the argument for other jurisdictions to engage in efficient and effective 
administrative  cooperation  with  the  EU  will  be  strengthened.  Member  States 
should,  therefore,  adopt  as  soon  as  possible  the  Commission  proposals  for 

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Directives  on  administrative  cooperation,  mutual  assistance  in  the  recovery  of 
taxes  and  savings  taxation  and  continue  to  give  appropriate  priority  to  the 
elimination of harmful business tax regimes. 

•  improved  policy  consistency  and  coordination  at  EU  level  would  assist  in 
promoting  good  governance  in  the  tax  area  on  a  wider  geographical  basis,  the 
objective  being  to  ensure  that  the  deepening  of  economic  relations  between  the 
EU and its partner jurisdictions would be accompanied by agreement on principles 
of  good  governance  in  the  tax  area  followed  up  by  tax  co-operation  agreements 
where  appropriate.  The  EU  should  also  seek  a  more  coordinated  approach 
worldwide between donors as regards the coherence of policies. 

•  having full regard to the principle of subsidiarity, there is a need to ensure more 
coherence  between  Member  States'  individual  positions  in  the  international  tax 
arena, and the agreed good governance principles, such as in bilateral tax treaties 
with  third  countries  and  in  international  fora.  This  requires  a  greater  degree  of 
coordination at EU level so as to ensure that the momentum towards a more open 
and constructive tax co-operation continues at a global level. 

The Commission intends to pursue constructive dialogue with all stakeholders concerned in 
connection with the principles and practical implementation of the measures identified in this 
Communication, and it will review and report on the situation in 2010.  

The Commission believes that the momentum that has been generated by the G20 Leaders in 
pushing  forward  international  tax  cooperation  needs  to  be  maintained  and  declares  that  it  is 
ready to assist the Member States in taking forward the appropriate instructions in the context 
of the policy on good governance in the tax area. 

The  Commission  invites  the  Council  to  adopt  these  policy  orientations  and  take  action  to 
ensure their swift implementation. 

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