Luxembourg will automatically inform other European Union countries about interest earned by their residents in the banking hub starting from 2015; its government announced on Wednesday, giving some ground on its long-cherished banking secrecy.
Pressure has mounted in the EU to fight tax evasion more forcefully; after the issue became embroiled in the Cyprus bailout and newspapers last week published leaked data revealing the names of 130,000 people from 170 nations who use tax havens.
Luxembourg said its decision stemmed from “the dialogue (it) had over years with its partners and of the analysis of what the future holds for international financial markets.” “Decisions of this importance have a preparatory phase that extends back far longer than those two very recent events,” its Finance Ministry said, referring to Cyprus and the so-called offshore leaks. “It is the result of a process of reflection and consultation, both with key actors in and outside Luxembourg.” The move will not affect residents of Luxembourg or non-EU countries. U.S. citizens may still see changes in the future, as Luxembourg is negotiating a new fiscal agreement with their country.
The EU expressed hope that the decision will also pave the way for Luxembourg to end its long-standing battle against stricter regulations for the entire bloc.
“We hope that this will now mean the very quick adoption of the revised savings directive,” Emer Traynor, spokeswoman for EU Tax Commissioner Algirdas Semeta, said in Brussels.
The EU has been considering the reforms since 2008. They would make life harder for tax dodgers, by closing loopholes in rules that call for the sharing of tax information.
Luxembourg and Austria had joined forces to block this process as well as to block a bid to negotiate amendments to savings tax agreements with Switzerland, Liechtenstein, Monaco, Andorra and San Marino.
Austrian Chancellor Werner Faymann has indicated that he may also be willing to compromise on banking secrecy, but faces political resistance domestically. European finance ministers are expected to discuss the issue when they meet in Dublin later this week.
“Austria is the last member state not to be applying the automatic exchange of information,” Traynor noted. “We hope that they will be able to follow Luxembourg’s lead.”