Luxembourg caves into pressure over secret bank accounts

In a move which will end decades of banking secrecy, the Luxembourg government has announced it is to start exchanging financial information with its EU partners as part of the European-wide bid to help fight tax evasion.

In his annual ‘State of the Nation’ address, Luxembourg prime minister Jean-Claude Juncker said the country would begin implementing automatic information exchange between EU tax administrations on 1 January 2015.

The decision is aimed at making the country’s huge financial sector more transparent and reducing its attractiveness as a tax haven, according to its government.

Juncker said: ‘Luxembourg’s financial centre, which does not live off dirty money and tax fraud, is ready to do so.’

In a statement, Luxembourg’s Finance Ministry said the country will apply automatic information exchange ‘based on the scope’ of EU rules on the taxation of interest payments made to EU citizens with bank accounts in Luxembourg. It indicated this could be extended to additional products, such as life insurance contracts, and to certain legal entities, such as trusts, but dividend payments are not currently included.

The government also said that capital gains tax for those living in Luxembourg will remain unchanged at 10% and that ‘those residents will enjoy bank secrecy as it exists today.’

A key reason for the shift in attitude lies in Luxembourg’s negotiations with the US over complying with its Foreign Account Tax Compliance Act (FATCA). Juncker said Luxembourg acknowledged that if it failed to abolish its banking secrecy, the country would cut off its financial industry from the US financial markets, while it ‘could not refuse to give Europeans what it would agree to give the Americans.’

Luxembourg, with a population of just 500,000, has 141 banks, holding assets worth about 22 times the country’s annual economic output of €44bn (£37bn). The country’s recent announcement is likely to increase pressure on Austria, now the only EU country not to have signed up for tax information exchange.

Published 11 April 2021