How Luxembourg’s agreements on automatic exchange of information have changed since the 2008 crisis

This article is part of a report which I drafted for a FinTech company based in the United Kingdom. It has been submitted in the month of August, which is why some facts might be outdated.

Since the end of the steel industry in the Greater Region (the area of Saarland, Lorraine, Luxembourg, Rhineland-Palatinate, Wallonia and the rest of the French-speaking community of Belgium, and the German-speaking community of Belgium), the Grand-Duchy of Luxembourg has focused on the tertiary sector, especially investment and insurance companies. One regulatory advantage which Luxembourg was able to profit from was the banking secrecy, which prohibits banks providing to authorities personal and account information about their customers. Until 2008, the policy of the government had been to respect the general rule of banking privacy, which is that it is preserved unless a criminal complaint has been filed. This effectively meant that foreign tax administrators needed to have palpable suspicion which would allow them to contact the Luxembourgish authorities. If this was not the case, no exchange of bank information could be executed.

The 2008 economic crisis, which lead to fiscal difficulties in many Eurozone and EU-countries, caused a clear shift in tone of leaders regarding the question of the Luxembourgish banking privacy.

Former French president Nicolas Sarkozy called, on multiple occasions, for the end of what he called “tax havens”. In an address to the United Nations, Sarkozy had stated [1] (translated):

“There needs to be an end to tax havens, because we cannot tolerate the places where money from speculation, crime and fraud is being hidden.”

Sarkozy had closely worked with German Chancellor Angela Merkel in a power-play to end all bank secrecy regulations. The OECD, which considers itself in the position of tackling offshore tax evasion [2], publishes an annual report on the transparency regarding tax purposes. While Luxembourg had previously been regarded as only “Partially Compliant”, the 2016 Tax Transparency Report by the OECD [3]

The OECD also instituted the Automatic Exchange Portal [4], through which the organisation intends to assist countries in the institution of automatic exchange agreements, and provides a Model Protocol [5]. The website reads:

“As the world becomes increasingly globalised and cross-border activities become the norm, tax administrations need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction. A key aspect for making tax administrations ready for the challenges of the 21st century is equipping them with the necessary legal, administrative and IT tools for verifying compliance of their taxpayers.”

The Luxembourgish government under then Prime Minister Jean-Claude Juncker had reacted to the international pressure (lead by Germany and France), as it was discontent with the negative image put on the Grand-Duchy. For a country which is keen on international cooperation, being blacklisted through a label of non-compliancy seemed unthinkable. As a result, Luxembourg has signed a number of, what it calls itself, “tax conventions” with countries all across the world.

Many of these conventions have been newly signed since the 2008 crises, while others have been renewed. Luxembourg signed [6] agreements with Germany (2009 & 2012), Canada (2012), France (2009, 2014, 2016), Russia (2011), Hong Kong (2010), Singapore (2013 & 2015), Switzerland (2009 & 2012), Qatar (2009) or the United Kingdom (2009).

In 2016, the OECD introduced the Common Reporting Standard (CRS) [7], of which Luxembourg is a participating country, and whose signatories will have to start to report on their efforts in 2018. The organisation claims [8] that:

“The Standard on automatic exchange of information is being implemented on a global scale. It is its global reach that will ensure its effectiveness in changing the equation of tax evasion and secrecy.

Both Luxembourgish governments under Prime Minister Jean-Claude Juncker and Prime Minister Xavier Bettel have assured the public that these regulatory changes will have no influence on the economic performance of the country. However, critics in the Grand-Duchy worry about issues of privacy, as concerns arise [9] that the OECD will also ask for bank details of Luxembourgish residents. Bank secrecy still remains a constitutional rights for those living in Luxembourg, which is often considered as a fundamental right of protection against government outreach.

While concerns arise that Luxembourg could see a decline in economic performance, other voices claim that Brexit presents a notable opportunity for the country. Finance Minister Pierre Gramegna clarified in an interview with Bloomberg in March 2017 [10] that Luxembourg does not intend to be a competitor of London City, and that trade with the European Union is still absolutely possible for the United Kingdom. However, several financial institutions have already announced that moving to Luxembourg is a serious option in the light of Brexit. In May 2017, JP Morgan declared [11] that it will relocate up to 1,000 of its bankers to different locations inside the European Union, including Luxembourg.

The Grand-Duchy of Luxembourg will certainly become more outwards-looking in its negotiations on tax transparency, as it is closely linked with business and trade deals. As a result, we are likely to see new or renewed agreements on automatic exchange of information with countries such as Malaysia, the United States, Qatar or South Africa.


[1] https://www.youtube.com/watch?v=Uzk8UD_b99M

[2] http://www.oecd.org/ctp/exchange-of-tax-information/42469606.pdf

[3] Tax Transparency 2016, Report on Progress
http://www.oecd.org/tax/transparency/GF-annual-report-2016.pdf

[4] http://www.oecd.org/tax/automatic-exchange/

[5] http://www.oecd.org/ctp/exchange-of-tax-information/Model-Protocol-TIEA.pdf

[6] http://www.impotsdirects.public.lu/fr/conventions/conv_vig.html

[7] http://www.oecd.org/tax/automatic-exchange/common-reporting-standard/

[8] http://www.oecd.org/tax/automatic-exchange/commitment-and-monitoring-process/

[9] http://paperjam.lu/news/ce-francais-qui-defendu-le-luxembourg

[10] https://www.bloomberg.com/news/articles/2017-03-10/luxembourg-s-wooing-is-working-as-finance-firms-set-brexit-plans

[11]https://www.theguardian.com/business/2017/may/03/jp-morgan-jobs-uk-brexit-dublin-frankfurt-luxembourg

Pictures are Creative Commons.

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About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

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