January 28, 2020

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.

Article source: http://www.nytimes.com/2013/05/23/world/europe/europe-pushes-to-shed-stigma-of-tax-haven-with-end-to-bank-secrecy.html?partner=rss&emc=rss

For Britain, Another Step Away From Europe

Many bankers and economists are pondering that question after Mr. Cameron’s surprising decision last week to leave Britain out of a historic accord aimed at moving Europe closer to political as well as monetary union.

Mr. Cameron said the pact lacked safeguards to protect the City of London, Britain’s version of Wall Street, against future regulations that might not be in its best interests. And because France and Germany would not bend on his proposed protections, he would not sign on to their plan for more tightly coordinated oversight of European Union governments’ revenue and spending.

Now, though, some in Britain worry that the nation’s ability to halt or shape what is expected to be a wave of future financial regulation from European Union headquarters will be severely constrained if Britain does not have a seat at the negotiating table. And so it remains to be seen whether the City financiers Mr. Cameron wanted to protect will eventually end up feeling grateful — or marginalized.

To be sure, few believe that his decision represents an immediate and mortal blow to London’s ambition to remain a center of international finance. Whatever banks and their overseers might eventually do on the Continent, much of the rest of the financial world — including the money centers of New York, Hong Kong and Tokyo — is likely to still see London as a primary node in the round-the-world, round-the-clock network.

Britain’s banks make more cross-border loans than those of any other country in the world, 18 percent of the global total. London is also home to the largest foreign exchange market in the world. And it remains the headquarters for the large banks that trade European sovereign debt, a business unlikely to go away any time soon.

Financial machinery aside, language, habits and history suggest that London will continue to be a magnet for the globally minded.

But some analysts nonetheless worry that Mr. Cameron’s desire to espouse the stubbornly independent British bulldog could harm the City over the long term.

“This is the worst possible news — the relative decline of the City of London relative to other financial centers in Europe is now a very real risk,” said Graham Bishop, a former London banker who is a consultant on European financial and regulatory matters. 

The decline will not happen at once, he argued. Europe is well aware that financial institutions in London have strong and deep links to the Continent.

But Britain, whose refusal to adopt the euro currency has long put it somewhat at odds with the European Union’s other biggest economies, appears to have estranged itself further from Europe’s policy inner circle.

With Britain now essentially having but one vote among 27 others in the European Union, the chipping away of London’s competitive position will be inevitable, Mr. Bishop contended.

Mr. Cameron has been cheered by the powerful faction of his Conservative Party that sees evil in all that Europe does. But it is unlikely that the constituency his veto was meant to protect — banks, hedge funds and insurance companies operating in the City of London — would welcome a further waning of Britain’s ability to influence regulations from Brussels.

Those executives, many of whom are French, German or Spanish, are a pragmatic, global lot. And they tend to shy away from public confrontation and wish only for an operating environment that continues to play to the City’s strength: providing competitive banking and financial services to an increasingly global economy.

“They will be very worried,” Mr. Bishop predicted.

For Britain, the stakes are huge.  

The fear is that the pact the other European Union members agreed to at the Brussels summit meeting will harden an emerging 17-member euro zone caucus within the 27-member European Union — a bloc that votes together on issues, particularly on financial regulations, that could work against the City of London.

Until now, Britain has been able to assemble blocking minorities on measures it opposes. That happened, for example, with a recent proposal to raise revenue for European governments by taxing financial transactions — a tax that would have put new fees on every trade of stocks, bonds and other financial instruments.

It is not hard to understand why Mr. Cameron and Britain vehemently opposed that particular measure. The new tax would have been imposed on activities that occur in the City more often and at greater volume than anywhere else in Europe.

Article source: http://feeds.nytimes.com/click.phdo?i=f0d325c22de74f274e8b6336b1a8b29b