By John O'Donnell and Martin Santa
BRUSSELS (Reuters) - Europe edged closer to lifting banking secrecy on Wednesday after Austria said it was ready to share data on foreign depositors but Vienna's support could fade should efforts to strike a similar deal with Switzerland fail.
Austria's dropping of objections allowed EU leaders to commit to an exchange of bank information between countries by the end of the year, as cash-strapped states seek to stop tax evasion and close loopholes highlighted by Apple Inc's use of a base in Ireland.
"It's a bad day for tax cheats," Austrian Chancellor Werner Faymann told reporters at a meeting of EU leaders to discuss fighting tax fraud by lifting bank secrecy.
"I believe we will manage the exchange of data by the end of the year," he said, adding later that although he was watching negotiations on a similar deal with Switzerland, Austria was in "full agreement".
Nearly all EU member states exchange information about which bank account holders receive which interest payments - an agreement known as the Savings Directive. Austria had not wanted to reveal the names of account holders to other countries and instead told banks to withhold tax.
German Chancellor Angela Merkel described the EU deal as an enormous step. "There is no doubt that the exchange of information about all kinds of income will be the rule for the future," she told reporters.
But there are hurdles ahead. Faymann is certain to come under pressure from his outspoken finance minister, Maria Fekter, if Switzerland does not sign up to a similar code.
Luxembourg also underscored the importance of a deal first with Switzerland.
It had previously backed a pan-EU agreement on exchanging bank information but on Wednesday, its prime minister appeared to qualify this support.
"We would like that there are first negotiations with Switzerland," Jean-Claude Juncker said, insisting, however, that this was not a precondition. "In light of these negotiations, we will, I hope, decide before the end of this year."
Most developed countries share information on taxpayers and depositors on demand. But since this requires the authorities in the requesting jurisdiction to suspect wrongdoing, it has only limited impact in uncovering unlawful behavior.
Automatic exchange of information makes it easier for tax authorities to spot tax evasion.
While it had publicly favored such a change, officials from Luxembourg have been privately rowing back.
Luxembourg does not want, for example, to back a revised version of the EU savings tax regime that would extend beyond simple interest payments on savings, little used to hide income, to include foundations and trusts.
The tiny but wealthy state has an important banking sector and a lot to lose. Nearby Switzerland is the globe's biggest offshore centre, with $2 trillion of offshore assets.
Were its banks to be subject to laxer rules, they could attract funds from Luxembourg, whose offshore assets are one quarter of Switzerland's.
In Austria, however, nowhere near as much offshore business is conducted. EU citizens other than Austrians have about 35 billion euros in deposits at the country's banks, a tenth of the total deposits there, according to the central bank in Vienna.
As well as negotiating with Switzerland to bring it into the same regime as the EU's 27 member states, the bloc will also negotiate with Liechtenstein, Monaco, Andorra and San Marino.
Momentum is gathering behind efforts to clamp down on tax evasion as Germany prepares for elections this year.
"The gap between rich and poor has widened dramatically in Germany in the past 10 years, making the issue of tax evasion an important one in the elections," said Jacob Kirkegaard of the Peterson Institute for International Economics think-tank.
(Writing by John O'Donnell; Additional reporting By Robert-Jan Bartunek and Ilona Wissenbach; Editing by Robin Pomeroy)