Luxembourg, home to a prized financial centre, changed tack Wednesday in the face of growing international pressure over tax evasion, agreeing to the automatic exchange of bank account information with its EU partners from 2015.
“We can introduce the automatic exchange of (bank account) information without any danger from January 2015,” Prime Minister Jean-Claude Juncker told Parliament.
The country’s financial services industry — which critics say has benefited from a strong tradition of bank secrecy to attract wealthy foreign clients — was ready for the change, he said.
“The financial sector does not depend totally on bank secrecy,” Juncker said, insisting that Luxembourg did not make its living “off dirty money or tax evasion.”
“The lights are not going to go out” as a result, he added.
A Luxembourg government statement said increased calls for change, especially from the United States, meant it had to review the current system which levies a withholding tax on the interest earned on bank saving accounts.
While the withholding tax, levied at 35 percent, was “a most effective instrument to ensure tax compliance and guarantee data protection,” the government had to adapt to the times.
Accordingly, it would report “all interest payments made” to individuals resident in another EU member state so as to ensure they paid the proper tax due there.
Significantly, the statement did not mention other accounts such as for life insurance or property investment — major parts of the Luxembourg financial sector — which are also supposed to be covered from 2015.
In addition, “the exchange of information will be based strictly on the EU’s 2003 directive on savings accounts … Companies are not involved,” one source close to the government said.
“There will be no shock for the financial sector,” the source added.
There would also be no change for residents in Luxembourg, who pay a 10-percent withholding tax and “who will enjoy bank secrecy as it exists today,” the government said.
Accounts held by US citizens or residents will be covered by a separate agreement with Washington, it said, while the tax regime for payments made to residents of third countries will remain unchanged.
Juncker said that it was “above all because of the radical position taken by the United States” that Luxembourg would make the change.
“The Americans only want to work with countries which accept the automatic exchange of information,” he said. “Our financial services sector cannot be cut off from the American market.”
The US Foreign Account Tax Compliance Act (FATCA) passed in 2010 requires US depositors to declare their overseas accounts and foreign financial institutions to report on the balance and activities of its US account-holders to American tax authorities.
On Tuesday, Britain France, Germany, Italy and Spain told the European Commission they had agreed to work on setting up a multilateral exchange facility modelled on FATCA which “will not only help in catching and deterring tax evaders but it will also provide a template as to the wider multilateral agreement we hope to see in due course.”
French President Francois Hollande on Wednesday vowed to “eradicate” tax havens worldwide and said his country’s banks would have to declare all subsidiaries globally.
“Tax havens must be eradicated in Europe and the world because this is a condition of saving jobs,” Hollande said, talking of a “need for a relentless battle against the excesses of money, greed and secret finance.”
Germany, Europe’s paymaster and which has championed the drive against tax evasion, welcomed what it said “must not have been an easy decision for Luxembourg.”
“Things are changing, which inspires great respect and satisfaction,” a German finance ministry spokesman said.
A spokeswoman for EU Tax Commissioner Algirdas Semeta said the Luxembourg announcement was welcome as it meant Austria was now the only holdout against the 2015 changes.
Austria signalled Tuesday that it wanted to at least discuss the issue but Chancellor Werner Faymann also noted that bank secrecy was protected by the constitution and that any sharing of information would not impact Austrian depositors.