Global Forum rating: Interview with Luc Frieden, Minister of Finance, Luxembourg, 28 November 2013
Luxembourg received a negative rating last week at the meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes. How do you explain that?
The Global Forum conducts peer reviews to assess its members on questions relating to transparency and exchange of information. Luxembourg successfully passed Phase 1 in 2011 which was focused on the legal and regulatory framework in place to allow for exchange of information upon request. This assessment was done shortly after the decision of the Government in 2009 to introduce the OECD standard on exchange of information. In fact, as pointed out by the Global Forum “Luxembourg has been very active and quick in negotiating EAOI mechanisms that incorporate the full version of article 26 of the OECD Model Tax Convention”.
Phase 2 was aimed at the efficiency of the system in place. Let me first point out that the assessment addresses exchange of information upon request and not automatic exchange of information. Secondly, the assessment covers the period from 2009 to 2011. This was the beginning of the implementation by the Luxembourg authorities of the new standard. A learning process took place and we can today draw a number of lessons from this experience. Although the rating “non-compliant” seems excessive, we are fully committed to rapidly improving our standard.
What is the overall strategy of the Government towards transparency?
Luxembourg is fully committed to the fight against tax fraud and tax evasion. The objective was and still is today undisputed. Cross-border movement of capital should not be a means for tax fraud and tax evasion but rather further trade and economic growth. As an international financial center, we consider it to be our fundamental duty to convey the message that finance, and in particular international investments, are key for economic progress. International standards must however be respected. Although we believe that the withholding tax is still today a very efficient way to ensure tax compliance (applicable in Luxembourg since 2005), we believe that in order to be a center of excellence in international finance it is paramount to reflect international standards.
We have therefore undertaken the following steps:
- 2009: Introduction and swift implementation of the OECDD standard on exchange of information upon request
- 2012: Fatca Model 1 negotiations with the Unites States of America
- 2013: Announcement of the Government to introduce automatic exchange of information as of 1 January 2015 on income savings of EU residents
- 2013: Signature of OECD model convention on mutual assistance in tax matters
The arguments underlying these developments are based on the conviction that tax fraud and tax evasion cannot be fought on a regional level only. We made our announcements in 2013 by stressing the importance of a global level playing field in order to avoid inefficiency, incoherence and competitive distortions.
What will do you concretely to become compliant?
Luxembourg is committed to immediately take remedial measures in order to comply to the standard defined by the Global Forum. According to the procedure in place, Luxembourg must present its measures within the next 12 months. We will not wait that long. We will closely collaborate with the competent staff at the Global Forum and identify the corrective measures that we must take. This is a commitment that I am sure the incoming Government will honor.
With regard to the legal and regulatory framework Luxembourg will, inter alia,
- Consult with the Secretariat of the Global Forum on the draft law 6625 pertaining to the immobilization of shares and corporate units in bearer form and the keeping of the register of shareholders of registered shares and of bearer shares as deposited on October 4 2013;
- A draft law authorizing the ratification of the Convention, signed by Luxembourg in May 2013, is under preparation and will be submitted to the Council of Ministers and Parliament for approval;
- Reassess the law of March 31 2010 introducing allowing the access to banking information according to the OECD standards on exchange of information upon request in tax matters, with a view to strengthen the domestic procedural framework instigating the exchange of information.
It is Luxembourg’s intention to initiate immediately the aforementioned remedial measures thereby underlying Luxembourg’s firm political commitment towards the internationally agreed tax transparency standards. A precise action plan with all measures will be developed. The objective is clear: Luxembourg is and must be considered compliant.
Strengthening the transparency and exchange of information for tax purposes framework will also require decisive actions in the area of practical implementation. Luxembourg’s current assessment by the Global Forum is based on the years 2009-2011. Since then Luxembourg’s competent authority has made considerable progress in implementing the tax transparency standards. In particular, communications with requesting partners have been vastly improved.
It is difficult to understand some of your positions: you say that you are committed to transparency and yet you seem to still be blocking in Brussels? Can you shed some light on that?
We must indeed distinguish between substance and process. On substance we all agree that we want to fight against tax fraud and tax evasion and that we need to have transparency. But we sometimes disagree on the way to get there. Luxembourg’s position is that we must manage the process in such a way that we do not inadvertently encourage capital flight away from Europe. Do you consider that we efficiently fought tax fraud and tax evasion if all the money is transferred to Switzerland or Singapore? The latter does not even have the withholding tax which still profits the EU Member States every year.
Recent discussions at the Ecofin revolve around the extension of the scope of the 2003 Savings Directive. As previously mentioned, we agreed in April 2013 to introduce automatic exchange of information based on the current Savings Directive. As of 1 January 2015 there will be a unique standard within the EU regarding exchange of information. The next step is to extend the current scope. We have already agreed to that. What we are saying today is that we should ensure that Switzerland commits to a step ahead as well before we adopt the extension of the scope. Again – the objective is clear but we must manage the process well. And this is why we are asking the European Commission to speed up negotiations with a number of third countries, ie Switzerland, in order to be able within the EU to move to the next level in our process towards transparency.
We must ensure a gradual level playing field and commit to a global standard. The world of finance is deeply interconnected and cannot be reduced to the European single market. As we move on in Europe we must ensure a certain balanced interaction with international rules and standards. Discrepancies will only work to our collective disadvantage.
(Source: Luxembourg for Finance)