Luxembourg ready to submit to automatic information exchange

11 April 2013

Luxembourg has yielded to EU demands for the automatic exchange of bank account information with other EU states by 2015.

Neither Luxembourg nor Austria currently participate in automatic exchange of interest payment information between EU governments, as mandated by the European Union Savings Directive. Instead they impose a withholding tax on cross-border interest payments, thus collecting revenues while protecting the client’s identity from their home government.

Other EU members, enthusiastically backed by the European Commission’s (EC) Tax Chief Algirdas Semeta, have long called for the two countries to adopt automatic information exchange. However, both governments have so far considered that they need banking secrecy to help their financial centres compete with Switzerland and Liechtenstein.

On Tuesday, Luxembourg’s Finance Minister Luc Frieden said the jurisdiction was open to more transparency and was considering dropping its resistance to automatic exchange. This hint was rapidly followed by a formal announcement from Prime Minister Jean-Claude Juncker, who said: ‘Whereas Luxembourg still considers the withholding tax to be a most effective instrument to ensure tax compliance and guarantee data protection, it also acknowledges that international developments (by which he meant the US Foreign Accounts Tax Compliance Act (FATCA), and the abandonment of the Swiss-German withholding tax agreement) point to a broader use of automatic exchange of information in tax matters … The government has therefore decided to introduce, on 1 January 2015 … the automatic exchange of information for all interest payments made by Luxembourg financial operators to individuals resident in another EU Member State, so as to ensure taxation according to the laws of the latter.’

Juncker claims that Luxembourg’s banking sector has followed a ‘resolute white money strategy’ and ‘doesn’t live off black money and tax evasion’.

Residents of Luxembourg will not be affected by the new law and will continue to pay a 10 per cent withholding tax on interest payments, retaining full banking secrecy. American taxpayers will be subject to a separate FATCA-related bilateral agreement currently being negotiated between Luxembourg and the US government. Tax residents of other non-EU countries are also unaffected.

Austria is now under heavy pressure to follow suit. Chancellor Werner Faymann has promised to join Luxembourg for ‘very cooperative’ negotiations with EU Finance Ministers at a meeting in Dublin this week. However, Austrian Finance Minister Maria Fekter insists that she will fight to protect banking secrecy and that information sharing would not apply to Austrian taxpayers.

‘Austria is the last member state not to apply automatic exchange of information,’ said a spokesperson for EC Tax Commissioner Semeta. ‘We understand that there are ongoing discussions in Austria, at this moment, on this issue and we hope that they will be able to follow Luxembourg’s lead.’ Semeta himself warned Austria against clinging to a ‘lonely and unsustainable position’.


Zone Bourse (Luxembourg government statement in English)


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