With the amount of financial information to be shared between European Union countries set to significantly increase over the next few years, expats will need to take these changes into account according to tax experts. As part of its intensified fight against tax evasion, the European Commission has proposed extending the automatic exchange of information between EU tax administrations, so that the EU will have the most comprehensive system in the world.

There are already plans to extend the EU’s Savings Tax Directive, and recently the Commission announced its plans to include dividends, capital gains and other forms of financial income and account balances to the list of categories to be subject to automatic exchange of information. ‘Member States will be better equipped to assess and collect the taxes they are due, while the EU will be well positioned to push for higher standards of tax governance globally. It will be another powerful weapon in our arsenal to lead a strong attack against tax evasion,’ said the Commissioner for Taxation, Algirdas Šemeta.

According to international tax and wealth management firm Blevins Franks, tax planning can get very complex when you have financial assets in different territories and you now need to be extra careful that you get it right. The EU has two Directives which provide for automatic information sharing, both of which will be extended; the Savings Tax Directive and the Administrative Cooperation Directive.
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The Savings Tax Directive came into effect in 2005 and it ensures that member states collect data on the savings income of EU residents and automatically forward it to the tax authority of the individual’s country of residence. Savings income covers interest from cash deposits and debt claims of every kind, such as corporate and government bonds. So far it does not cover interest from investment funds, pensions, innovative financial instruments and payments made through trusts and foundations. However, in May the European Council committed to adopting a revised Savings Tax Directive by the end of this year which is likely to include these forms of income.

The firm points out that Austria and Luxembourg currently do not automatically exchange information and therefore, if you do not opt for exchange of information, these countries will instead deduct a withholding tax. However they have now committed to fall into line with the rest of the EU despite previous reluctance. Also the EU has started discussions with Switzerland, Andorra, Liechtenstein, Monaco and San Marino on the automatic exchange of bank data. Although signatories to the Directive, they currently apply the withholding tax so that banking secrecy can be maintained.

The Administrative Cooperation Directive will apply automatic exchange of information to other forms of income, with effect from January 2015. Until now it covered income from employment, director’s fees, life insurance, pensions and property. Under the latest proposal, the list will include dividends, capital gains and other financial income and account balances.

The European Commission also plans to introduce a bill to make exchange of information more efficient and less fragmented. ‘The European Commission believes that automatic exchange of information must become the global standard and the EU will do everything it can to ensure this. This is the way the world is going. Financial privacy is fast being consigned to history ,’ said a Blevins Franks spokesman. ‘You need to expect your tax authority to know where your wealth is and what income and gains it generates. There are no hiding places. However this does not mean that tax mitigation is no longer possible. There are legitimate, approved arrangements available in Spain, France, Portugal, Cyprus and Malta which can lower taxes on your savings and investments, sometimes on your wealth and estate too,’ he added.