It was a blunt and unsettling message for a country whose opaque banks
have sucked in hundreds of billions of euros from abroad and whose
national motto — “We want to remain what we are” — is a credo of dogged
resistance to change.
“Nothing is as it was before,” Prime Minister Jean-Claude Juncker told
Parliament last month, explaining why, after years of resistance,
Luxembourg had decided to start sharing information with foreign tax
authorities about the money stashed in its banks. “Not everything has
changed, but lots of things have changed. Other changes are necessary,
or everything will change.”
The attention this week on the ability of Apple and other prominent
American corporations to avoid corporate taxes through offshore tax
arrangements obscures a perhaps more significant development,
highlighted by Luxembourg’s abrupt retreat from banking secrecy: the
relentless pressures being piled on opaque money centers around the
world amid a sweeping global assault on tax evasion and the secrecy that
enables it.
“Bank secrecy is a relic of the past,” said Algirdas Semeta, the
European Union’s senior official responsible for tax issues. “Soon we
will see the death of bank secrecy around the world.”
From the rain-swept avenues of Luxembourg’s capital to the sun-spangled
lagoons of the British Virgin Islands in the Caribbean, the authorities
are scrambling to shed the stigma of enabling tax cheats and to figure
out how to change their secretive ways without driving away lucrative
foreign clients.
The pressure, increased by the recent leak of a giant cache of
confidential files relating to offshore havens, is “like a steamroller,”
said Egide Thein, former director of the Luxembourg Economic
Development Bureau.
How to keep this steamroller moving was the focus of a European Union
summit meeting on Wednesday in Brussels. The gathering produced no
momentous decisions but did prod Austria, the union’s last stalwart
defender of banking secrecy, to accept the idea of sharing information
about bank accounts held by foreigners — so long as countries outside
the union, notably Switzerland, agree to do the same.
Austria and Luxembourg also gave a conditional pledge to, by the end of
the year, sign onto an expanded program of automatic data sharing that
would go beyond just banks to include trusts and foundations, which are
widely used by wealthy Europeans to park and often hide money.
The European Commission, the union’s executive arm, has been pushing for
years to enlarge the scope of financial information that is
automatically shared among the bloc’s 27 member states. It has also
pressed for a crackdown on “aggressive tax planning” by multinational
companies like Apple, which investigators in Congress say avoided
billions of taxes in America and elsewhere through an elaborate,
globe-spanning web of companies revolving around outfits based in
Ireland.
Ireland, which holds the European Union’s rotating presidency, has
strongly supported measures to combat tax evasion, which is illegal, but
has come under intense scrutiny and criticism in recent days for its
role in enabling tax avoidance schemes. Prime Minister Enda Kenny,
speaking Wednesday in Brussels, said that global tax rules “have not
kept up” with economic changes in the digital era, but he rejected
assertions by Senate investigators that Ireland gave Apple a special 2
percent tax rate. “Ireland does not do special deals or side deals with
companies,” he said.
In many cases, both legal and illegal skirting of taxes occur in the
same places — a global archipelago of mostly tiny “business friendly”
outposts long anchored in secrecy and low or highly flexible tax rates.
Luxembourg, for example, has only 539,000 people but serves as the
regional headquarters for a host of large companies that book their
profits here rather than in the countries where they do business. It is
also a major financial center whose 130 or so banks, mostly subsidiaries
of major international institutions, held deposits of around $350
billion at the end of last year — about $650,000 per resident.
Officials here bristle at the “tax haven” label, insisting that
Luxembourg attracts so much cash, most of it from foreigners, simply
because the country offers political stability, honest regulators and a
pool of multilingual finance professionals.
All the same, its pledge to join a Europe-wide program to exchange
banking information is a significant and risky step for a country that
the Tax Justice Network, a research group in London, branded the “death
star” of financial secrecy in Europe because of its long and previously
steadfast opposition to greater transparency. “In five years, there will be no tax havens left on earth,” Mr. Thein
predicted, because “a country cannot prosper in the long run from
stealing other people’s taxes.”
Even the world’s most tight-lipped offshore havens — the Cayman Islands,
Turks and Caicos Islands, and other British territories in the
Caribbean — announced this month that they will begin to share bank
account information, though they retain highly opaque corporate
registration systems. Singapore, where France’s now disgraced former
budget minister, Jérôme Cahuzac, for a time stashed secret funds, is
also making it more difficult for foreigners to park money beyond the
reach of tax authorities.
Regulators have been chipping away at bank secrecy for some time. For its role in illegally assisting wealthy Americans
in evading taxes, the Swiss banking giant UBS agreed in 2009 to pay
$780 million in fines to the United States government and turned over
the names of thousands of American account holders.
But the current, escalating assault on secrecy began in 2010, when
Congress passed legislation that requires foreign financial institutions
to inform the Internal Revenue Service of all accounts held by American
taxpayers and by foreign entities in which Americans have a substantial
ownership interest.
This provided a powerful lever to the European Union to prize open
opaque financial sectors both inside the 27-nation bloc and beyond. At a
meeting of finance ministers in Brussels last week, the European
Commission was given the go-ahead to negotiate financial information
sharing accords with Switzerland, Liechtenstein, Andorra, Monaco and San
Marino.
By one estimate, wealthy individuals hold unreported assets worth at
least $21 trillion — far more than the entire annual economic output of
the United States — in tax havens. Mr. Semeta, the European Union’s tax
commissioner, estimates that Europe loses well over a trillion dollars a
year through tax evasion and the more divisive and politically delicate
issue of legal tax avoidance.
The big question now hanging over Luxembourg and other financial centers
under pressure to share information is how many depositors will try to
take their money elsewhere.
Mr. Frieden, Luxembourg’s finance minister, played down the risk of a
mass flight. “Some small clients may leave, but a lot of large clients
are coming in,” he said.
All the same, Luxembourg wants to make sure that more opaque rivals like
Switzerland and Singapore do not gain an unfair competitive edge.
Luxembourg, Mr. Frieden said, supports transparency but “wants a level
playing field.”
Luxembourg bankers say the bulk of their customers have nothing to hide
but still value their privacy for security and other legitimate reasons.
Jean-Jacques Rommes, chief executive of the Luxembourg Bankers
Association, complained that banks are being turned into “the long arm
of tax authorities. Many customers don’t like that. The more money they
have, the less they like it.”
Alain Steichen, a prominent Luxembourg lawyer who has worked closely
with the financial sector here for years, predicts a potentially serious
exodus by depositors who do not want their identities revealed.
Luxembourg’s finance sector, he said, has developed far beyond its early
years in the 1970s, when it became notorious for helping Belgian
dentists and other modestly wealthy customers from neighboring countries
hide their incomes. It now attracts sophisticated global players and
involves much more than murky private banking.
Indeed, around $3 trillion is invested in mutual funds and other
investment vehicles domiciled in Luxembourg. Only the United States has a
bigger fund industry.
But, Mr. Steichen added, “we clearly have a legacy issue” because many
of those who stashed money in Luxembourg banks in the past to avoid
taxes still have accounts — and may now bolt. Such bank clients, he
said, will most likely shift to other locations that still offer
secrecy. But the list of those is shrinking fast.
“Nothing is as it was before,” Prime Minister Jean-Claude Juncker told
Parliament last month, explaining why, after years of resistance,
Luxembourg had decided to start sharing information with foreign tax
authorities about the money stashed in its banks. “Not everything has
changed, but lots of things have changed. Other changes are necessary,
or everything will change.”
The attention this week on the ability of Apple and other prominent
American corporations to avoid corporate taxes through offshore tax
arrangements obscures a perhaps more significant development,
highlighted by Luxembourg’s abrupt retreat from banking secrecy: the
relentless pressures being piled on opaque money centers around the
world amid a sweeping global assault on tax evasion and the secrecy that
enables it.
“Bank secrecy is a relic of the past,” said Algirdas Semeta, the
European Union’s senior official responsible for tax issues. “Soon we
will see the death of bank secrecy around the world.”
From the rain-swept avenues of Luxembourg’s capital to the sun-spangled
lagoons of the British Virgin Islands in the Caribbean, the authorities
are scrambling to shed the stigma of enabling tax cheats and to figure
out how to change their secretive ways without driving away lucrative
foreign clients.
The pressure, increased by the recent leak of a giant cache of
confidential files relating to offshore havens, is “like a steamroller,”
said Egide Thein, former director of the Luxembourg Economic
Development Bureau.
How to keep this steamroller moving was the focus of a European Union
summit meeting on Wednesday in Brussels. The gathering produced no
momentous decisions but did prod Austria, the union’s last stalwart
defender of banking secrecy, to accept the idea of sharing information
about bank accounts held by foreigners — so long as countries outside
the union, notably Switzerland, agree to do the same.
Austria and Luxembourg also gave a conditional pledge to, by the end of
the year, sign onto an expanded program of automatic data sharing that
would go beyond just banks to include trusts and foundations, which are
widely used by wealthy Europeans to park and often hide money.
The European Commission, the union’s executive arm, has been pushing for
years to enlarge the scope of financial information that is
automatically shared among the bloc’s 27 member states. It has also
pressed for a crackdown on “aggressive tax planning” by multinational
companies like Apple, which investigators in Congress say avoided
billions of taxes in America and elsewhere through an elaborate,
globe-spanning web of companies revolving around outfits based in
Ireland.
Ireland, which holds the European Union’s rotating presidency, has
strongly supported measures to combat tax evasion, which is illegal, but
has come under intense scrutiny and criticism in recent days for its
role in enabling tax avoidance schemes. Prime Minister Enda Kenny,
speaking Wednesday in Brussels, said that global tax rules “have not
kept up” with economic changes in the digital era, but he rejected
assertions by Senate investigators that Ireland gave Apple a special 2
percent tax rate. “Ireland does not do special deals or side deals with
companies,” he said.
In many cases, both legal and illegal skirting of taxes occur in the
same places — a global archipelago of mostly tiny “business friendly”
outposts long anchored in secrecy and low or highly flexible tax rates.
Luxembourg, for example, has only 539,000 people but serves as the
regional headquarters for a host of large companies that book their
profits here rather than in the countries where they do business. It is
also a major financial center whose 130 or so banks, mostly subsidiaries
of major international institutions, held deposits of around $350
billion at the end of last year — about $650,000 per resident.
Officials here bristle at the “tax haven” label, insisting that
Luxembourg attracts so much cash, most of it from foreigners, simply
because the country offers political stability, honest regulators and a
pool of multilingual finance professionals.
All the same, its pledge to join a Europe-wide program to exchange
banking information is a significant and risky step for a country that
the Tax Justice Network, a research group in London, branded the “death
star” of financial secrecy in Europe because of its long and previously
steadfast opposition to greater transparency.
“In five years, there will be no tax havens left on earth,” Mr. Thein
predicted, because “a country cannot prosper in the long run from
stealing other people’s taxes.”
Even the world’s most tight-lipped offshore havens — the Cayman Islands,
Turks and Caicos Islands, and other British territories in the
Caribbean — announced this month that they will begin to share bank
account information, though they retain highly opaque corporate
registration systems. Singapore, where France’s now disgraced former
budget minister, Jérôme Cahuzac, for a time stashed secret funds, is
also making it more difficult for foreigners to park money beyond the
reach of tax authorities.
Regulators have been chipping away at bank secrecy for some time. For its role in illegally assisting wealthy Americans
in evading taxes, the Swiss banking giant UBS agreed in 2009 to pay
$780 million in fines to the United States government and turned over
the names of thousands of American account holders.
But the current, escalating assault on secrecy began in 2010, when
Congress passed legislation that requires foreign financial institutions
to inform the Internal Revenue Service of all accounts held by American
taxpayers and by foreign entities in which Americans have a substantial
ownership interest.
This provided a powerful lever to the European Union to prize open
opaque financial sectors both inside the 27-nation bloc and beyond. At a
meeting of finance ministers in Brussels last week, the European
Commission was given the go-ahead to negotiate financial information
sharing accords with Switzerland, Liechtenstein, Andorra, Monaco and San
Marino.
By one estimate, wealthy individuals hold unreported assets worth at
least $21 trillion — far more than the entire annual economic output of
the United States — in tax havens. Mr. Semeta, the European Union’s tax
commissioner, estimates that Europe loses well over a trillion dollars a
year through tax evasion and the more divisive and politically delicate
issue of legal tax avoidance.
The big question now hanging over Luxembourg and other financial centers
under pressure to share information is how many depositors will try to
take their money elsewhere.
Mr. Frieden, Luxembourg’s finance minister, played down the risk of a
mass flight. “Some small clients may leave, but a lot of large clients
are coming in,” he said.
All the same, Luxembourg wants to make sure that more opaque rivals like
Switzerland and Singapore do not gain an unfair competitive edge.
Luxembourg, Mr. Frieden said, supports transparency but “wants a level
playing field.”
Luxembourg bankers say the bulk of their customers have nothing to hide
but still value their privacy for security and other legitimate reasons.
Jean-Jacques Rommes, chief executive of the Luxembourg Bankers
Association, complained that banks are being turned into “the long arm
of tax authorities. Many customers don’t like that. The more money they
have, the less they like it.”
Luxembourg’s finance sector, he said, has developed far beyond its early
years in the 1970s, when it became notorious for helping Belgian
dentists and other modestly wealthy customers from neighboring countries
hide their incomes. It now attracts sophisticated global players and
involves much more than murky private banking.
Indeed, around $3 trillion is invested in mutual funds and other
investment vehicles domiciled in Luxembourg. Only the United States has a
bigger fund industry.
Still very numerous, however, are opportunities for legal tax avoidance.
Mr. Semeta, the European Union tax official, acknowledged that halting
such practices is hard because fixing tax rates remains the prerogative
of individual European states. This means, for example, that Ireland is
entirely within its rights to set a corporate tax rate of 12.5 percent,
less than half the level in Germany, France and Britain and just over a
third the 35 percent rate in the United States.
Nonetheless, Mr. Semeta said, it is still possible to “create an environment that does not allow tax shopping.”
Luxembourg, which has the lowest sales tax rate in Europe, has been
particularly adept at attracting shoppers. Amazon, for example, reports
its sales in Britain and elsewhere in Europe through a Luxembourg
company, which operates out of a modest building on a narrow side street
in the capital’s old town. The Luxembourg office does not ship any
books, but is stuffed instead with accountants and lawyers.
Fuente: www.nytimes.com
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