Luxembourg plans to lift bank secrecy rules for European Union citizens who have savings based in the country, the Prime Minister announced yesterday, marking a sharp shift in policy that will take effect from 2015.
The move brings Luxembourg into line with all other EU countries bar Austria in sharing information within the EU about bank depositors in its territory. The decision adds to pressure on Vienna to fall into line, after Austria’s Chancellor said on Tuesday it would join talks on the subject.
Luxembourg’s decision follows lobbying by Germany and the European Commission, bolstered by the case of former French Budget Minister Jerome Cahuzac, who was placed under investigation for fraud after admitting lying about having a Swiss bank account.
“We can, without great damage, introduce automatic exchange of information as of January 1, 2015,” Prime Minister Jean-Claude Juncker told Parliament in a state-of-the-nation address.
“We are following a global movement... we are not caving in to German pressure,” he said, adding that 25 EU countries as well as the USwanted such data-sharing.
Germany said on Tuesday that the EU’s five largest economies – Germany, France, Britain, Italy and Spain – had agreed to deepen cooperation on tackling tax evasion. Juncker’s announcement ends decades of bank secrecy in Luxembourg, which helped the country establish what is now one of the biggest financial centres in Europe and to make its citizens the region’s wealthiest in terms of per capita income.
In recent weeks, however, Luxembourg, with a banking industry roughly 22 times the size of its economy and with deposits equivalent to 10 times its GDP, has come under renewed pressure to change.
The heavy losses imposed on uninsured deposit holders in the bailout of Cyprus underscored the weak bargaining position of smaller EU states should they run into difficulty.
Cyprus’s financial sector, swollen with foreign funds lured by low taxes and light regulation, also dwarfed the island’s economy.
The European Commission said it “warmly welcomed” the announcement by Juncker and said discussions were ongoing with Austria to encourage it to fully sign up to the EU’s savings directive, a piece of legislation that advocates say will help in the fight against tax evasion across the EU.
Luxembourg is also set to sign a similar agreement with the US, which has long been pushing for tighter controls on offshore centres such as Switzerland to stop tax evasion.
Once Luxembourg adopts the legislation, it would mean the automatic exchange of data about EU citizens holding bank accounts in Luxembourg, with the aim of cracking down on tax avoidance in particular on interest income from savings.
It will not apply to foreign companies based in the country, which is a popular headquarters for major corporations. Juncker said Luxembourg would not increase corporation tax.