Luxembourg defends banking secrecy
LUXEMBOURG, March 18 (Reuter) - 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.
Countries used by investors to salt away cash outside their home state have come under the spotlight since a spat developed between Germany and neighboring Liechtenstein, which is not a member of the 27-nation EU.
Many wealthy Germans were found to have parked money in the tiny Alpine tax haven to avoid the taxman back home.
Germany persuaded the EU's executive European Commission bring forward a review of the bloc's savings tax directive to May in a bid to make it harder for investors to escape the net.
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.
Luxembourg, Austria and Belgium won the right to a watered down version in return for introducing a withholding tax.
"The system of withholding tax works well. We transfer quite an impressive amount of tax to other member states of the European Union. 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.
"At the European level we should move to attack unlawful activities, which are only being made possible through borders, but then we must not lose our priorities," Mersch told Reuters.
"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. In larger countries you can have checks and balances through a multiplication of institutions which control each other," Mersch said.
FOCUS ON THIRD COUNTRIES
Frieden said Luxembourg was making sure that what he terms banking confidentiality did not lead to abuses.
"If we reopen this discussion, it will be a very difficult discussion on how we deal with trusts, on how we deal with dividends. The last discussions lasted for eight or ten years, these ones would last for even longer," Frieden.
"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.
"We think that the Commission has other things to do than come up with proposals that would lead to a system that does not work," Frieden said.
Instead, the Commission should put its efforts into signing up jurisdictions outside the EU to the savings tax rules, such as Hong Kong, Macau and Singapore, Frieden said.
Liechtenstein had already signed up to the EU savings tax before its spat with Germany though most of the money parked there is in trusts. Frieden was critical of how the Alpine state 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.
(Additional reporting by David Milliken; Editing by Ruth Pitchford)
(For summit blog: http:summitnotebook.reuters.com/)
