GoA Curbs Bank Secrecy for Foreigners, Gets

UNCLAS SECTION 01 OF 02 VIENNA 000323 SIPDIS, SENSITIVE TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/ATUKORALA TREASURY PASS FEDERAL RESERVE, FINCEN, AND SEC/JACOBS E.O. 12958: N/A TAGS: EFIN AU SUBJECT: GoA Curbs Bank Secrecy for Foreigners, Gets an Earful from Austrian Opposition REF: VIENNA 0266 Sensitive But Unclassified - Entire Cable. ¶1. SUMMARY: Together with Switzerland and Liechtenstein, the GoA has signaled it will loosen bank secrecy in cases of alleged tax fraud by foreigners. In the future, it will reinterpret Austrian bank secrecy law so that a criminal investigation is no longer required to cooperate with foreign tax authorities; instead, the GoA will accept cases of "founded suspicion" under a new presumption that such evidence would suffice under Austrian law to initiate criminal tax procedures. The GoA plans to withdraw its reservation to Article 26 of the OECD Standard Tax Treaty (in relevant bilateral tax treaties),arguing that it will thereby fulfill OECD standards for cooperation. The GoA hopes its legal gymnastics will let it skirt the 2/3 majority it would need to amend the Bank Act. Finance Minister and Vice-Chancellor Josef Proell said Austria will not go further and will not provide full data exchange. Even this modest step drew fire from the Austrian opposition and may not stand up in court. END SUMMARY. GoA Eases Bank Secrecy for Foreigners - - - - - - - - - - - - - - - - - - - ¶2. On March 13, FinMin Proell announced that the GoA (in unison with Switzerland, Luxembourg and Liechtenstein) will soften bank secrecy regulations in international tax cases, following clarification by the OECD on the interpretation of Article 26 (exchange of information) of its standard double taxation treaty. Until now, GoA tax treaty reservations to Article 26 specified that Austria would lend legal assistance only on the basis of an ongoing criminal investigation (administrative or judicial) in the applicant State. Furthermore, the GoA has held that underpayment of taxes (as long as a foreign taxpayer meets filing obligations) does not constitute tax fraud for the purpose of lifting bank secrecy. Proell argued that the GoA can fulfill all OECD transparency standards and withdraw its reservation to Article 26 without changing Austrian law (para 38 of the Austrian Banking Act). ¶3. Paragraph 38 of the Banking Act says that the obligation to observe banking secrecy shall not exist, among other reasons, vis-a-vis government authorities in connection with ongoing non- misdemeanor criminal proceedings for intentional tax fraud. The GoA's new application of Paragraph 38 is as follows: since prerequisites for criminal tax proceedings vary from country to country, the GoA will henceforth exchange information in all documented cases of "founded suspicion" by a foreign tax authority, under the new presumption that this would suffice under Austrian law to initiate criminal tax procedures (i.e., for which the material legal basis is given). Austria will move to amend bilateral double taxation treaties accordingly. NOTE: The GoA wants to avoid any step requiring an amendment to Austria's Banking Act, which is only possible with a two-thirds majority in Parliament. A Chilly Reaction in Austria - - - - - - - - - - - - - - - ¶4. Despite the modesty of the changes, opposition figures signaled their intention to fight should the issue reach Parliament. Predictably, far-right opposition parties FPO and BZO voiced a clear "no" to the policy. Austria's leading far-right firebrand (FPO Chairman Heinz-Christian Strache) called the move "kowtowing to Brussels" and "treason against Austrian interests." BZO caucus chief Josef Bucher described the move as a slippery slope which might be a death blow for large Austrian banks suffering from losses in central/eastern Europe. MP Werner Kogler (Greens) doubted that the new interpretation will stand, predicting that Parliament will have to address the issue. VIENNA 00000323 002 OF 002 Steering Clear of European Fireworks - - - - - - - - - - - - - - - - - - - ¶5. Austrian policymakers have tried to steer clear of the war of words between Swiss and German politicians. In reaction to German finance ministry comments that Austria and Switzerland should go further, Proell reiterated that the GoA will not/not provide full or automatic information exchange (for data protection reasons) and will not support routine checks by tax authorities. However, Proell has had conversations this week with German chancellor Merkel and FinMin Steinbrueck, seeking to tone down the debate. Publicly, Proell beseeched European colleagues to work for "less emotion and more solutions" in the bank secrecy / tax havens issue. COMMENT: See You in Court (or in Parliament) - - - - - - - - - - - - - - - - - - - - - - - ¶6. The GoA wants to stay off black lists and formally comply with OECD standards while leaving Austrian banking law unchanged (for reasons outlined in reftel). This circle will be hard to square. A leading Austrian tax expert (Werner Doralt) pronounced the new policy a material change to Austrian law (which is quite specific in requiring criminal proceedings in foreign tax cases). Doralt's reading -- shared by other mainstream legal authorities -- means that Austrian courts may overrule the new GoA interpretation (and any amended bilateral double taxation treaties) unless and until the GoA bites the bullet by going to Parliament. KILNER