The European Commission has drafted proposals to reform EU taxation rules aimed at reducing tax evasion in the 27-nation bloc. If the plan becomes law, EU member states will no longer be able to invoke banking secrecy rules as a reason for refusing to disclose client information.

Tax fraud within the EU is estimated at between 200 billion euros and 250 billion euros ($257 billion and $321 billion) per year, which amounts to as much as 2.5 percent of the bloc's overall economy.

EU Tax Commissioner Laszlo Kovacs said he wants national tax authorities to cooperate by sharing more information about savings held by EU citizens in different member states.

"In a globalized world, where tax evaders and fraudsters take advantage of the different limitations on national tax administrations, efficient cooperation and mutual assistance between tax administrations is essential," Kovacs said.

EU: Bank secrecy can't cover up crime

Kovac's proposals target EU citizens who avoid paying taxes at home by transferring their savings to another EU country. The new taxation regulations would only apply when one EU country requests tax information about a resident of another EU country.

"It is unacceptable that bank secrecy in one member state can be allowed to constitute an obstacle to the correct assessment by the tax authorities of another member state," Kovacs said.

He added that the plan was not to abolish bank secrecy but to eliminate its potential to protect international fraudsters and tax evaders.

Austria, Belgium and Luxembourg are the only EU countries that have bank secrecy rules. Under current EU regulations national governments are already bound to share tax information.

Tax regulation overhaul

If implemented, the commission's proposals would establish a common platform for the exchange of tax information to replace a dated system introduced in the 1970s. Tax inspectors from one EU country would be allowed to extend their probes into the territory of another member state and seek to improve cooperation in recovering unpaid taxes.

The commission hopes to obtain the required unanimous approval for its proposals from the bloc's 27 governments by the end of the year.

Austria's finance ministry has said that while it was willing to cooperate, its banking secrecy rules would not be changed. Vienna argues that it would be at a competitive disadvantage to non-EU members Switzerland and Liechtenstein.

Tax evasion trial

The full extent of the abuse of current tax system was highlighted last week when former Deutsche Post head Klaus Zumwinkel was convicted by a court in Bochum in one of Germany's biggest ever tax evasion trials.

Zumwinkel was charged in 2008 after his name appeared in a list of alleged tax evaders bought by Germany's BND intelligence service from a whistleblower at a Liechtenstein bank. The scandal caused the Alpine principality and other tax havens to come under heavy international criticism for their traditions of banking secrecy.

Since Liechtenstein is not a member of the European Union, it would not be subject to the proposed law.