Part 2: Comparative Legal Analysis – Evaluating EU Trade Agreements with Third
2.3 EU-Serbia Stabilisation and Association Agreement
2.3.2 Assessment of the Regulatory Framework for the Provision of Financial Services and
2.3.2.1 Financial services
As a corollary of its specific nature as an agreement within Serbia’s EU accession process, the SAA has a somewhat different structure of the provisions on financial services compared to EU free trade agreements with other countries. However, there are a number of provisions in the SAA that are of immediate relevance for financial services providers and for the efforts to combat illicit capital flows, money laundering and tax evasion. They primarily specify the objectives and means of cooperation between the contracting parties. In regulating market access, the SAA outlines the importance of granting national treatment and most favoured nation treatment to EU and Serbian operators in the financial sector. At the same time, while the agreement foresees the usual guarantees for prudential reasons, it also permits derogations where this is necessary for a contracting party to address exceptional adverse circumstances that impact its financial system. The SAA establishes a system of gradual liberalisation of capital flows, based on minimum cooperation commitments. These are chiefly aimed at enhancing Serbia’s regulatory and legislative blueprints for financial services provision.
As a consequence, the Serbian Government and Parliament have successfully cooperated to achieve a moderately high level of implementation of the SAA, and, where this has not yet been done, plans have been made for the adoption of primary and secondary legislation to this end.
General provision
The SAA contains only one provision explicitly referring to financial services. In a very general fashion, this provides for cooperation between the two parties with the aim of ‘establishing and developing a suitable framework of the banking, insurance and financial services sectors in Serbia based on fair competition practices and ensuring the necessary level playing field’.167 A financial service is defined broadly ‘as any service of a financial nature offered by a financial service provider of a Party’.168
Right of establishment
In the first place, the SAA enshrines equal treatment concerning the right of establishment of EU and Serbian companies on each other’s territory. It obliges the parties to guarantee non- discriminatory conditions for the setting up of operations of their companies in the territory of the other party, whereby neither of the parties is allowed to subject the companies of the other party to conditions less favourable to those applicable to their own companies or companies of third countries.169 However, as long as equal treatment is maintained, the parties are free to regulate the establishment and operation of companies on their territories. In the field of
167 Article 91 of the SAA.
168 See Annex VI of the SAA. This contains a list of services considered to be financial services.
169 Article 53 of the SAA.
financial services, a prudential carve out is foreseen. This means that the parties may adopt measures for prudential reasons, which include but are not limited to: (a) measures for the protection of investors, depositors, policy holders, and persons to whom a fiduciary duty is owed by a financial service supplier; and (b) measures to ensure the integrity and stability of the financial system.170 Yet, these measures may not be used to avoid the parties’ obligations under the SAA. Furthermore, neither party is under a duty to disclose information on the affairs and accounts of individual customers or any confidential or proprietary information in the possession of public entities.171 The SAA also enables companies of one party that are established in the territory of the other party to employ their own nationals in the territory of the other party under certain conditions.172
Supply of services
When it comes to the supply of services, the parties are prohibited from taking any measures or actions that would render cross-border provision of services ‘significantly more restrictive’ for the companies or nationals of the other party compared to the situation existing before the entry into force of the SAA.173
Movement of capital
With respect to current payments and movement of capital, the parties undertake to authorise any payments and transfers on the current account of balance of payments between the EU and Serbia.174 As regards transactions on the capital and financial account of balance of payments, the parties are obliged to guarantee free movement of capital in respect of two groups of transfers. On the one hand, this duty applies to direct investments made in companies formed in accordance with the laws of the host country; investments made pursuant to the aforesaid rights of establishment; as well as the liquidation or repatriation of these investments and of any profit thus made. On the other hand, it applies to credits related to commercial transactions or cross-border provision of services, and to financial loans and credits with maturity longer than a year.175 As of 1 September 2017, the EU and Serbia shall ensure free movement of capital in relation to portfolio investment and financial loans and credits with maturity shorter than a year.176 While the SAA prohibits any new restrictions on the movement of capital between the EU and Serbia, each party is entitled to introduce safeguard measures in exceptional circumstances if: (a) movements of capital between them cause, or threaten to cause, serious
170 Article 54(2) of the SAA.
171 Article 54(3) of the SAA.
172 Article 58 of the SAA.
173 Article 60 of the SAA.
174 Article 62 of the SAA.
175 Article 63(1)-(2) of the SAA.
176 Article 63(4) of the SAA.
difficulties for the operation of exchange rate policy or monetary policy; (b) such measures are strictly necessary; and (c) they are not in effect for longer than six months.177
Investment
Another matter of importance for financial services is that of investment. With a view to supporting Serbia’s economic and industrial revitalisation, the EU and Serbia agreed to cooperate in the field of investment promotion and protection. This is aimed at creating a favourable climate for both domestic and foreign private investment through an improvement of Serbia’s legal framework.178
2.3.2.2 Taxation
Collaboration in the area of taxation is of paramount significance for avoiding illicit capital flows. In this regard, the SAA has established several goals.179 The first one refers to ensuring the effectiveness of tax collection and the fight against fiscal fraud, which is to be achieved through a further reform of Serbia’s fiscal system and the restructuring of tax administration.
The second goal seeks to eliminate harmful tax competition. This is to be carried out in accordance with the principles laid down in the legally non-binding but politically important Code of Conduct for Business Taxation, which was adopted by the Council on 1 December 1997.180 The third goal is to: (a) strengthen the enforcement of measures aimed at preventing tax fraud, evasion and avoidance through enhanced transparency; (b) fight against corruption; and (c) exchange information with the EU Member States.
To these ends, Serbia has accepted the obligation to complete the conclusion of bilateral agreements with the EU Member States in coherence with the latest versions of the OECD’s Model Tax Convention of Income and Capital and its Model Agreement on Exchange of Information in Tax Matters. Furthermore, the SAA lays down that it may not be construed in a way that would prevent the adoption or enforcement of national measures that seek to prevent tax avoidance or evasion pursuant to agreements on the avoidance of double taxation or national fiscal legislation.181
The implementation of these commitments has thus far yielded suboptimal results. This is primarily due to three factors: (a) Serbia’s exclusion from global tax cooperation arrangements and networks; (b) weak cooperation between Serbia’s administrative authorities in charge of tackling tax evasion; and (c) the unfavourable combination of extremely complex tax regulation and the operation of the shadow economy.
177 Article 63(6) of the SAA.
178 Article 93 of the SAA.
179 Article 100 of the SAA.
180 See Annex 1 of the 'Conclusions of the Ecofin Council Meeting of 1 December 1997 Concerning Taxation Policy', [1998] OJ C2/1, which identifies tests for verifying whether national tax measures give rise to harmful tax competition.
2.3.2.3 Money laundering
The SAA further foresees cooperation in the fight against money laundering. As a general principle, Serbia undertook to contribute to regional stability and the development of good neighbourly relations, which is to be done by developing programmes of common interest, such as those related inter alia to money laundering, organised crime and corruption.182
In more concrete terms, the EU and Serbia seek to prevent the use of their financial systems and relevant non-financial sectors, on the one hand, for the laundering of proceeds from general criminal activities (in particular drug offences), and, on the other, for the purpose of financing terrorism. The key objective is to provide Serbia with administrative and technical assistance in order for it to implement relevant regulations and ensure the efficient functioning of the mechanisms to combat money laundering and terrorism financing in accordance with EU and international standards.183 Key among them are the EU’s 4th Anti-Money Laundering Directive of 2015 and standards adopted by the Financial Action Task Force. The latter were adopted in the form of Recommendations in February 2012 and updated in October 2015. Furthermore, the SAA provisions on combating organised crime and other illegal activities envisage cooperation on preventing and combating inter alia fiscal fraud.184
Therefore, the EU-Serbia free trade agreement creates a solid overarching framework for regulatory cooperation aimed at the liberalisation of trade in general and the prevention of illicit capital flows – particularly money laundering, tax fraud, and terrorism financing. This framework, however, lacks a detailed scheme and action plan for achieving these objectives.
Trade in financial services as such is not a developed area of this agreement, but future rounds of accession negotiations between the EU and Serbia in this field will focus on harmonising the latter’s legislation with the EU acquis.
182 Article 6 of the SAA.
183 Article 84 of the SAA. The goal of preventing and suppressing acts of terrorism and terrorism financing is also foreseen in Article 87 of the SAA.
184 Article 86(1)(d) of the SAA.
Box 6 Impact of the EU-Serbia SAA