November 15, 2019

Europe Pushes to Shed Stigma of Tax Haven With End to Bank Secrecy

“Nothing is as it was before,” Prime Minister Jean-Claude Juncker told Parliament last month, explaining why, after years of resistance, Luxembourg had decided to start sharing information with foreign tax authorities about the money stashed in its banks. “Not everything has changed, but lots of things have changed. Other changes are necessary, or everything will change.”

The attention this week on the ability of Apple and other prominent American corporations to avoid corporate taxes through offshore tax arrangements obscures a perhaps more significant development, highlighted by Luxembourg’s abrupt retreat from banking secrecy: the relentless pressures being piled on opaque money centers around the world amid a sweeping global assault on tax evasion and the secrecy that enables it.

“Bank secrecy is a relic of the past,” said Algirdas Semeta, the European Union’s senior official responsible for tax issues. “Soon we will see the death of bank secrecy around the world.”

From the rain-swept avenues of Luxembourg’s capital to the sun-spangled lagoons of the British Virgin Islands in the Caribbean, the authorities are scrambling to shed the stigma of enabling tax cheats and to figure out how to change their secretive ways without driving away lucrative foreign clients.

The pressure, increased by the recent leak of a giant cache of confidential files relating to offshore havens, is “like a steamroller,” said Egide Thein, former director of the Luxembourg Economic Development Bureau.

How to keep this steamroller moving was the focus of a European Union summit meeting on Wednesday in Brussels. The gathering produced no momentous decisions but did prod Austria, the union’s last stalwart defender of banking secrecy, to accept the idea of sharing information about bank accounts held by foreigners — so long as countries outside the union, notably Switzerland, agree to do the same.

Austria and Luxembourg also gave a conditional pledge to, by the end of the year, sign onto an expanded program of automatic data sharing that would go beyond just banks to include trusts and foundations, which are widely used by wealthy Europeans to park and often hide money.

The European Commission, the union’s executive arm, has been pushing for years to enlarge the scope of financial information that is automatically shared among the bloc’s 27 member states. It has also pressed for a crackdown on “aggressive tax planning” by multinational companies like Apple, which investigators in Congress say avoided billions of taxes in America and elsewhere through an elaborate, globe-spanning web of companies revolving around outfits based in Ireland.

Ireland, which holds the European Union’s rotating presidency, has strongly supported measures to combat tax evasion, which is illegal, but has come under intense scrutiny and criticism in recent days for its role in enabling tax avoidance schemes. Prime Minister Enda Kenny, speaking Wednesday in Brussels, said that global tax rules “have not kept up” with economic changes in the digital era, but he rejected assertions by Senate investigators that Ireland gave Apple a special 2 percent tax rate. “Ireland does not do special deals or side deals with companies,” he said.

In many cases, both legal and illegal skirting of taxes occur in the same places — a global archipelago of mostly tiny “business friendly” outposts long anchored in secrecy and low or highly flexible tax rates.

Luxembourg, for example, has only 539,000 people but serves as the regional headquarters for a host of large companies that book their profits here rather than in the countries where they do business. It is also a major financial center whose 130 or so banks, mostly subsidiaries of major international institutions, held deposits of around $350 billion at the end of last year — about $650,000 per resident.

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