March 19, 2008 8:37AM

Striking Mortal Blow Against European Anti‐​Tax Competition Scheme, Luxembourg Rejects Calls to Eliminate Financial Privacy

Europe’s high‐​tax nations have launched another attack against low‐​tax jurisdictions. Using the recent German‐​Liechtenstein imbroglio as an excuse, they are arguing that all so‐​called tax havens should emasculate privacy laws so that tax collectors from countries such as France and Germany can track — and tax — flight capital. Politicians from uncompetitive welfare states are still bitter that a previous “savings tax directive” resulted in a watered‐​down scheme that failed to deliver big piles of additional tax revenue. But all their chest‐​beating may prove equally futile in 2008. Austria already has signalled that it has no interest in weakening its human‐​rights protections, and now Luxembourg has firmly stated that it rejects any proposals that would weaken its bank secrecy laws. This is a fatal blow since, as the UK‐​based Guardian explains, an expanded savings tax directive would require support from all 27 EU nations:

Luxembourg will not dilute its bank secrecy rules and is against hasty changes to European Union law that taxes foreign savings, the Grand Duchy’s Treasury Minister Luc Frieden said. …The 2005 rules only tax cash deposits while trusts, stocks and bonds are outside their scope, but Luxembourg won’t be rushed. “I’m amazed that some people want to change this directive even before having had any evaluation about how the current system works,” Frieden told the Reuters Funds Summit. The current directive took years to agree as unanimity among all the bloc’s members is needed in tax matters. …“I think we should not change things again that work well,” Frieden said. The Grand Duchy’s Central Bank Governor, Yves Mersch, said the privacy laws were widely supported in Luxembourg and the EU should focus instead on tackling cross‐​border abuses. …“Bank secrecy is for me part of our social consensus because confidentiality in a small country is extremely important for the maintenance of democratic rule. …“The Luxembourg government sees no need and will not come up with new proposals in this context and will not change the bank confidentiality rules as they have proven to be in the interest of a good working system in Europe,” Frieden. …Frieden was critical of how the Alpine state [Liechtenstein] has been treated. “I expect all countries to be treated with respect, independent of their size. I feel that is the case with Luxembourg and would like it to be the case vis‐​a‐​vis other countries even if they are smaller than Luxembourg,” he said.