The Council held an orientation debate on the draft anti-fraud and tax information exchange agreement with Liechtenstein. The dossier is a priority for the Presidency in the months ahead.

The Hungarian Presidency intends, in the light of comments made by ministers, to take work forward in the Council's high-level working group on taxation so as to enable the Council to make progress as soon as possible.

The draft agreement with Liechtenstein covers fraud as relates to both direct and indirect taxation. It uses a definition of fraud that covers both natural and legal persons (e.g. companies) and includes not just false documents and false tax returns, but also the submission of incomplete tax returns.

The text provides for cooperation between the parties through the exchange of information that is forseeably relevant to tax administrations . It allows the parties to trigger administrative assistance that cannot be refused on the sole grounds that the information requested is held by a bank or other financial institution, and legal assistance for acts that are punishable under the laws of the parties. Implementing measures, such as seizure, are foreseen for acts that are punishable by prison sentence by both parties.

The draft agreement with Liechtenstein may later serve as a model for the negotiation of agreements with Andorra, Monaco and San Marino, as well as the negotiation of a new agreement with Switzerland that would extend existing provisions on indirect taxation to also cover direct taxation.

The Lisbon Treaty, which entered into force on 1 December 2009, amended the EU's two core treaties, the Treaty on European Union (TEU) and the Treaty establishing the European Community (EC Treaty). The latter was renamed the Treaty on the Functioning of the European Union (TFEU).

These changes had various consequences for many ongoing procedures. First of all, the articles of the TEU and of the old EC Treaty that constitute the legal basis of all the proposals founded on those Treaties were renumbered in accordance with the table of equivalences mentioned in Article 5 of the Lisbon Treaty.

In addition, some proposals underwent a change to their legal basis going beyond a mere change to their numbering, and this resulted in changes to the type of procedure .

The Lisbon Treaty also introduced new concepts of decision-making procedure . The old "codecision procedure" was extended to new areas and renamed the "ordinary legislative procedure". A new "consent procedure" replaced the old "assent procedure". New interinstitutional procedures were also set up for the adoption of certain non-legislative acts, for example the conclusion of some international agreements.

The ongoing proposals concerned by these changes were formally modified by the Commission in a Communication published on 2 December 2009 (COM(2009)0665).

In the case of the proposal for a Council Decision on the conclusion, on behalf of the European Community, of the Cooperation Agreement between the European Community and its Member States, of the one part, and the Principality of Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests, the entry into force of the Lisbon Treaty had the following impacts :

· the old legal basis – Treaty/EC/Art.280, Art.300(2) first para and (3) first para. - became Art 218 (6)(a), Art.325 of the TFEU. Please note that the numbering of the old legal basis corresponds to the consolidated version of the Treaty that was applicable immediately before the entry into force of the Lisbon Treaty, and may differ from the references in the original Commission proposal ;

· the proposal, which had previously fallen under the old consultation procedure (CNS), was classified as an interinstitutional non-legislative procedure (NLE).

PURPOSE: to propose an amended version of the proposal to conclude the Cooperation Agreement between the EU and its Member States, of the one part, and Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests and to ensure exchange of information on tax matters (amended proposal on the signing and provisional application of the Cooperation Agreement).

PROPOSED ACT: Council Decision.

BACKGROUND: on 10 December 2008, the Commission adopted a proposal for a Council Decision on the signing, on behalf of the European Community, of the Cooperation Agreement between the European Community and its Member States, of the one part, and the Principality of Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests as well as a proposal for a Council Decision on the conclusion, on behalf of the European Community, of the Cooperation Agreement between the European Community and its Member States, of the one part, and the Principality of Liechtenstein, of the other part, to combat fraud and any other illegal activity to the detriment of their financial interests (see previous initial legislative document – COM(2008)0839 ).

Following the conclusions adopted by the ECOFIN Council on 10 February 2009, Liechtenstein is expected to encompass in the agreement with the EU at least a similar scope of obligations as it had agreed with third Countries. The Council also mandated the Commission to negotiate changes to ensure effective administrative assistance and access to information with regard to all forms of investments, in particular foundations and trusts.

Liechtenstein, followed by other countries, issued an official statement, by which it recognises the standard for cooperation under the OECD Article 26 of the Model Convention on income and capital (2005). Such a standard should not be restricted to cases of tax fraud and tax evasion but should cover all exchanges of information, including for tax cooperation purposes.

In 2009, the Commission renegotiated the 2008 Agreement with Liechtenstein. For information on the content of the Agreement and details of the amendments, please refer to the summary of 24/11/2009.

This proposal, whose contents are the same as the initial proposal, concerns the signature and the provisional application of the Agreement.

The Council was briefed by the Commission on progress in the negotiation of an agreement with Liechtenstein on measures to combat tax fraud.

It agreed to return to the issue at its meeting on 9 June in the light of further developments.

The Council adopted a series of conclusions s regards the anti-fraud agreement with Liechtenstein.

Following the discussion held at the meeting of the Council on 4 November 2008, the Council strongly invites the Commission to continue the negotiations with Liechtenstein, in conformity with the mandate from 2006, in order to obtain such changes in the text of the draft agreement to ensure effective administrative assistance and access to information with regard to all forms of investment, in particular foundations and trusts .

As regards the provision of information in tax matters to the Member States, the Council expects Liechtenstein to encompass in the agreement with the European Community and its Member States at least a similar scope of obligations as Liechtenstein recently agreed with third countries.

The Council calls on the Commission to report back on progress at one of its forthcoming meetings, at the latest in May 2009

PURPOSE: to conclude an agreement with Liechtenstein to combat fraud and any other illegal activity.

BACKGROUND: in the context of the negotiations with Liechtenstein concerning its association with the Schengen acquis, it became apparent that specific comprehensive anti-fraud negotiations with Liechtenstein could address the fact that according to the Liechtenstein domestic law, legal assistance is excluded for certain specific offences regarding taxes, customs or infringements of foreign trade provisions.

Negotiations were therefore conducted by the Commission to conclude such an agreement and led to the conclusion of this draft agreement on 27 June 2008.

CONTENT: the draft agreement provides for the following main elements:

Illegal activities in connection with the trade of goods and services : the prime aim of the Agreement is to complement the envisaged association of Liechtenstein to the Schengen area, with those provisions in the field of administrative and judicial assistance of the Community acquis, which are at present neither covered by the EEA nor the Schengen acquis, but which are necessary to grant each other full assistance on fraud and all other illegal activities, including customs and indirect tax offences in connection with the trade of goods and services. In that respect, the Agreement between the European Community and its Member States and Switzerland to counter fraud and all other illegal activities affecting their financial interests (see CNS/2004/0187 ) has served as a model.

The draft agreement provides for:

administrative assistance and assistance in recovery, including for illegal activities affecting grants and public procurement, which at the present are not covered by the EEA-Agreement; judicial co-operation, including the evasion of value-added tax, in particular allowing for searches and seizure and access to bank information, which as such is not foreseen by Liechtenstein’s association to the Schengen area, given that Liechtenstein declared explicitly that tax offences being investigated by the Liechtenstein authorities may not give rise to an appeal before a court competent inter alia to hear criminal matters.

Fraudulent activities affecting direct taxes : Liechtenstein’s participation in the EEA and its envisaged adherence to the Schengen acquis has justified tackling also illegal activities affecting all forms of taxation, including direct taxes, from the start of the negotiations. However, there still remains a difference in the treatment of direct taxes in relation to other trade-related levies, such as customs and indirect taxes. This difference is due to the less advanced state of integration of Community legislation and European Union law in the field of direct taxes. Another aim of the Agreement is thus to ensure that Liechtenstein will grant administrative and judicial assistance on fraud affecting direct taxes beyond and besides of what is foreseen in the Liechtenstein Savings Tax Agreement. In this regard, the Agreement is innovative insofar as it is the first one negotiated on a European level to cover all forms of taxes. The Agreement is broader in scope in relation to the model of the Swiss Anti-Fraud Agreement, since it leads to aligning Liechtenstein's providing for assistance on fraud affecting direct taxation with the European standards.

It provides for:

administrative assistance for (document related) fraudulent conduct affecting direct taxes, under the same conditions as granted amongst the Member States under Community legislation, allowing for integrating future reforms and enhancements of the assistance level within the European Community into the Agreement via the Joint Committee; recovery assistance for (document related) fraudulent conduct affecting direct taxes as is granted amongst the Member States under Community legislation; judicial co-operation for (document related) fraudulent conduct affecting direct taxes, including searches and seizure and access to bank information, which at present would not be covered by Liechtenstein’s association to Schengen.

As regards assistance with respect to foundations and other forms of investment which are controlled by a fiduciary and where the founder and the beneficial owner of the foundation are not publicly registered, the contracting parties need to employ all their information and control powers in order to respond to a request for assistance in the form of information exchange. Pursuant to the provisions of the agreement, the fact that the information is held by a fiduciary does not affect the admissibility of a request for assistance with the consequence, that the tax authorities of the requested contracting party will in case of a need obtain the necessary information from the fiduciary who as an economic operator will be obliged to cooperate.

Other specific provisions : more favourable provisions of bilateral or multilateral Agreements between the Parties are not affected by the provisions contained in the Agreement, in particular with regard to the Agreement between the European Community and Liechtenstein providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments. Administrative cooperation is shaped in accordance with the standards of the ‘Naples II Convention’ and Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation. The provisions on recovery are inspired by Council Directive 76/308/EEC on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of the agricultural levies and customs duties. The provisions on judicial cooperation are inspired from the Convention Implementing the Schengen Agreement, the EU Convention on Mutual Assistance in Criminal Matters and the Protocol to that Convention.