Last bastions of EU banking secrecy set to tackle tax evasion

Luxembourg and Austria are set for talks with the European Union to forge new ways to help stamp out cross-border tax cheats.

It follows increasing pressure on both countries to ease their decades-long resistance to greater transparency of its banking system following the recent bailout of Cyprus, and the leaked details over millions of secret off-shore bank accounts held in the British Virgin Islands.

Historically, Austria and Luxembourg are the only two EU member states out of the body’s 27 countries that have refused to partake in the exchange of information about depositors.

Luc Frieden, Luxembourg’s finance minister, said the state – which holds deposits some 10 times the size of its economy – was prepared to discuss easing banking secrecy rules and beefing-up its co-operation with other EU tax authorities in the ongoing battle against tax evasion.

At a conference in London, he told reporters that the EU’s second smallest state would ‘no longer strictly reject’ easing banking secrecy rules. ‘It has not been decided, it is something that is being discussed in the government.’

And in an interview with Germany’s Frankfurter Allgemeine Sonntagszeitung, he said:

‘Luxembourg does not rely on clients who want to save tax.’

Luxembourg’s thawing of its hard-line stance, follows the European Commission warning Austria on Monday that its banking secrecy rules risked placing the country in a ‘lonely and unsustainable position’ if it refused to embrace the same data sharing rules on foreign depositors, that other EU member states already adhere to.

Austria’s chancellor, Werner Faymann, said on Tuesday that Austrians' domestic bank accounts would remain off-limits from the taxman's probes, but wealthy foreigners with deposits in local banks may face unprecedented scrutiny if the talks with Brussels go well.

Faymann said:

‘We are trying to find an appropriate form of combating tax fraud more strongly than before. We will conduct talks together with Luxembourg.’

When probed if that meant Austria would surrender its decades-long resistance to revealing the identities of savers, he said:

‘We are conducting these talks together with Luxembourg so that something comes out of it. That is what it means.’

Austria's banks are known to use its banking secrecy rules to market their services, stressing that only a change to its constitution could halt the practice. Despite this, and according to central bank data, foreign deposits only account for around a tenth of overall deposits, at 35bn euros.

Published 10 April 2021

Released 10 April 2021