Luxembourg for Finance - The Blog

So, you have a great story that you're determined to share with the rest of the world, but the facts just don't support your case? No problem, with a little imagination and a good dose of insolence you can go a long way. If you want to see how it works, take a look at the recent "report" published by the pressure group Tax Justice Network on the "secrecy jurisdictions" of the planet.

The story goes like this: "Luxembourg is one of the world's top secrecy jurisdictions and a tax haven".

In order to make this story credible, begin by citing extracts from press articles that denounce alleged scandals, preferably in dramatic language. Whether these articles were the result of serious research, or whether they were adequately documented, is not of the least importance. What counts is that they create an impression and support the case.

Next, embellish your "report" with statements you have heard here and there or with your own assumptions, of the sort: "Luxembourg is hosting large tax-evading and other criminal assets from around th world". After all, your report is not part of a legal procedure where such "arguments" would be rejected as hearsay.

After this little warming up exercise, move on to the freestyle of cheap propaganda. For instance, take the European Savings Directive and announce, without the least embarrassment, that Luxembourg has refused to apply the automatic exchange of information. Carefully avoid mentioning that instead of this Luxembourg applies an automatic withholding tax on savings income, which could seriously weaken your case.

In order to uphold your claim that Luxembourg has signed very few double tax treaties that conform with OECD standards, be careful to quote figures from 30 June 2010. By contrast, if you then state that thanks to its wide range of double tax treaties Luxembourg offers better access to international markets than traditional tax havens, don't forget to insert a link to the website of the Bankers' Association that publishes an up to date list of 64 such treaties. By doing this you are in fact contradicting your assertion that Luxembourg is a tax haven, since the signing of a tax treaty only makes sense where there is effective taxation in both contracting jurisdictions leading to a real risk of double taxation, but this is a subtlety that will escape most readers.

Also criticize the fact that Luxembourg does not have a public register providing detailed information on trusts domiciled in the Grand Duchy. You must rely on the fact that your readers will already have forgotten that, on a previous page, you reproached the Banking Association with lobbying in favour of introducing a trust law into Luxembourg legislation which at present does not allow such vehicles.

You are of a sporting nature and the idea of a winners' podium appeals to you? Then you must convert the results of your work into a ranking. If, for some reason, your first effort does not yield the hoped for results, do not despair. The problem can be resolved by weighting the results. In the choice of criteria for weighting, give full rein to your imagination. Experiment with different criteria until you get the desired results. If you run out of ideas, or if you are in a hurry, fall back on the old rule of thumb that the economic success of a country is directly proportional to its size. If, therefore, a small country enjoys great success in a particular domain, something suspicious must be going on.

For the rest, be careful to use vague terminology such as "partly" or "not adequately" if you cannot avoid saying that international standards have been respected by the country under review. The reader will be able to develop his own negative opinion and you will have succeeded in your objective.

Wenn einer eine Reise tut, nach Berlin etwa, wie in meinem Fall zum diesjährigen Kommunikations-Kongress, konnte er bzw. sie von dort die folgenden Informationen mit nach Hause nehmen:
 
1.     Social Media führt zu Kontrollverlust
2.     Sascha Lobos Freundin hat zuhause die Schlappen an
3.     Sony entwickelt gerade Kontaktlinsen, mit denen man Videospiele in 3D erleben kann (toll!)
4.     Wer zuviel twittert, bekommt nichts vom Vortag mit.
 
Wer hätte das gedacht? Alle, die sich jetzt schon zuviel im WWW herumtreiben, dürfen geschockt sein: Wer zu viele (persönliche) Informationen im Netz freigibt, fördert den Kontrollverlust über seine eigene Identität. Oder er nimmt es einfach in Kauf, dass jemand anderes, wildfremdes, eine Identität aufbaut, über die er nicht mehr selbst bestimmen kann. Genau dieses Problem haben Prominente wie Sascha Lobo, Deutschlands bekanntester Blogger und Indikator dafür, dass aggressive Frisuren nicht auf einen ähnlich gebildeten Charakter schließen lassen. Übrigens schon wieder so ein Bild, das durch die Medien geprägt ist, ich gebe es gerne zu. Fast ängstlich erklärt dieser, dass jeder, der im Social Web unterwegs ist, den Kontrollverlust akzeptieren muss. Die Frage sei nur, wie man damit umgehe.
 
Gott sei Dank ist der Mensch immer noch ein selbstbestimmendes Wesen, der eigenmächtig entscheiden kann, was er von sich ins Internet stellen will oder nicht. Zumindest dieser Punkt ist also kontrollierbar. Was andere aus und mit einem machen - sei es dahingestellt, ob die Information ursprünglich von uns freigegeben worden ist, oder nicht - steht jedoch auf einem anderen Blatt und wird eines der wichtigsten Themen der Medienbranche der Zukunft sein. Nicht nur für uns als Einzelpersonen, sondern auch für ganze Staaten oder Interessengemeinschaften jedweder Art, die meinen, ihr Bild im Social Web steuern zu können. Bei Lobos daheim postet die Freundin, jetzt Verlobte, die Verlobung jedenfalls auf Facebook. Hat die wohl nicht richtig zugehört.
 
Alfredo Triviño von News International bestätigt dann das, was Technikbegeisterte gar nicht freuen wird. Nachdem er akribisch eine Tablet-Version mit allen erdenklichen interaktiven Finessen für The Times entwickelt hat, bleibt die Erkenntnis, dass weniger mehr ist. Mehr inhaltlich sinnvoller Content, weniger Schnickschnack. Da helfen langfristig auch die 3D-Kontaktlinsen nicht weiter, die Spiele-Süchtige gerade bei Sony zusammenbasteln.
 
Unterdessen versuche ich, einige dieser neu gewonnen Erkenntnisse an unsere Twitter-Community weiterzugeben und siehe da, schon wieder den Faden verloren. Dagmar Reim, Intendantin des Rundfunks Berlin-Brandenburg, bezeichnet diese Tweets am Ende der Veranstaltung übrigens als Null-Nachrichten. Sie hat vollkommen Recht. Ich twittere trotzdem weiter, zum Beispiel dass Dagmar Reim Tweets als Null-Nachrichten bezeichnet. Könnte ja jemanden der Daheimgebliebenen interessieren. Ich beschließe, dass Twitter trotzdem einer der wichtigsten Nachrichtenverteiler der Welt ist (siehe Arabischer Frühling), ich aber voll und ganz verstehen kann, wenn sich die Frau Intendantin lieber auf die wesentlichen Dinge des Lebens konzentrieren will.
 
Nach zwei spannenden Tagen steige ich also mit einigen neuen Erkenntnissen und noch viel mehr Denkanstößen zurück in den Flieger, wo ich die Erlebnisse noch einmal Revue passieren lasse. Während unsere kleine Bombardier eine Schleife über das abendliche Berlin fliegt, kommen mir noch zwei weitere, jedoch weniger elementare Erkenntnisse:
 
5.     (Die meisten) Menschen, die in der PR arbeiten, haben schöne Klamotten
6.     Berlin hat die größte Dichte an beleuchteten Fußballplätzen Deutschlands.

At the request of clients, JP Morgan has just launched a global Catholic Ethical Balanced Fund within its retail umbrella fund JP Morgan Funds. Perhaps we should thank our Islamic finance friends for opening up a new sector. Hopefully we'll see more ethical funds with defined strategies. See commentary: http://bit.ly/kIqDwS

"There is no such thing as an ethically neutral business leader".  So stated Cardinal Tarcisio Bertoni, Secretary of State, opening an Executive Summit on business ethics hosted by the Vatican at which LFF was present. Global business leaders and top academics, some of different faiths, spent 2 days tackling the relationship between ethics and business. The following reports include interviews with different delegates present at the summit.

    English report:

    http://www.radiovaticana.org/en1/Articolo.asp?c=496635
    http://www.radiovaticana.org/en1/Articolo.asp?c=496733


    German report:

    http://www.radiovaticana.org/ted/Articolo.asp?c=497028


    French report:

    http://www.radiovaticana.org/fr1/Articolo.asp?c=497042

James Carville, an advisor to former President Clinton, is famous for saying : "I used to think that if there was reincarnation, I wanted to come back as the president or the pope. But now I would like to come back as the bond market. You can intimidate everybody.

" This year, Europe has discovered how right Carville was. The bond markets decided that the public finances of Greece, Ireland and now Portugal are not sustainable. The result was a prohibitive rise in the interest premium demanded by the market for their government bond issues, resulting in an inability to refinance current spending and expiring debt. This forced their governments into drastic and previously unthinkable austerity measures, and drove the creation of an EU bail-out fund to avoid the case of sovereign default of a Euro-country, a huge embarrassment with financial and political implications for the entire Eurozone. But the power of the bond markets went much beyond Greece and Ireland, and even beyond other countries of "peripheral Europe" with similar problems. Almost all countries in Europe, including apparently healthy ones such as Germany, Luxembourg and others, have recognised that the bond markets are now closely scrutinising public finances making real distinctions between them, and pricing in corresponding interest rate premiums. And we are now seeing with Ireland, once the markets refuse to refinance, they are in the position to dictate the type and extent of austerity that is required. Furthermore, the country can be subjected to pressure from its EU bailout partners - the best example being the insistence by France and Germany that Ireland should now also increase its corporate tax rate from the current 12,5% - a crass and disgraceful attempt to link EU bailout money to what these two countries consider "unfair" Irish tax competition.

A country that no longer has control over its tax and spending policy has lost important dimensions of its sovereignty. Luc Frieden, Luxembourg's finance minister, is on record as saying that Luxembourg's would lose its fiscal sovereignty should its accumulated debt reach 30% of GDP from its current level of roughly 15%. Since the Greek crisis, almost all countries in Europe, including those outside the Eurozone, have woken up to the danger of an adverse bond market judgments and the loss of sovereignty that this threatens. After record public deficits in 2009 to replace failing private demand in the wake of the financial crisis, governments everywhere have performed a sharp about-turn: although growth remains fragile, they are implementing more or less drastic austerity programmes, with the express purpose of reducing accumulated government debt. They are thus making a clear choice - satisfying the bond markets - over other policy objectives such as employment. One of the most visible of these was the UK's recent budget, where the government is reducing spending by 25% and eliminating 500 000 public sector jobs.

Governments are right to make such choices. As we have seen twice this year, once the markets have rendered a judgment, it is too late. Governments are dependent on market refinancing in the immediate term; by contrast, political lead times for implementing austerity measures are longer. And for many reasons, market-forced austerity and bailouts are never the best solution. They are politically difficult in the concerned country, and, in the case of bailouts, in the countries providing the bailout funds. As they are drastic, they represent a shock to the economy that creates far more disruption and costs to individuals and businesses than a pre-emptive programme implemented earlier, gradually, in measured doses. Far worse, they create a situation of confrontation between the markets and the street, as we are witnessing with the strikes in Greece. These seem manageable in this case; it is far from sure that this will always be the case. There is also much potential for populist politicians to exploit such situations.

The bond markets will be scrutinising European public finances even more intensely in the future. Under the changes to the Lisbon Treaty proposed by Germany and agreed to in principle by all other EU countries, bond holders will be required to bear a part of any future bailout costs after 2013. The proposals are sensible. Without a free ride in the form of automatic tax payer bailouts, the markets will be forced to make judgments and give signals on the public finances of bond-issuing governments much more carefully and much earlier. This will provide a much stronger market mechanism for ensuring that governments maintain sound fiscal policy: through much earlier interest rate signals, the markets will punish profligate governments and reward those pursuing sustainable policies. Recent austerity measures have mostly focussed on reducing spending. But ultimately, sustainable public finances will be determined by the revenues generated by sound economic fundamentals, in particular competitiveness in world markets. Wealth and related tax revenues are ultimately generated by competitive industries. This will be the main challenge for countries whose problem is declining competitiveness.

James Carville was right; bond markets can intimidate powerful governments. But bond markets are essential for government to fulfil its role in society. They allow society to redistribute the burden of public finance across generations, to make public investments before these provide a return, to finance emergency spending. In short, they are essential for nations to fully exercise their sovereignty. The bond markets are governments' friend, not its enemy. It is up to governments to keep their houses in order to be able to make best use of them.

Luxembourg having ranked third in the CIA's World Factbook in terms of GDP per capita, Tax Justice Network last week contemplated on its blog wherein Luxembourg's economic success lies. The activist organisation answered its own question about Luxembourg, this so-called "economic conundrum", with the usual spiel about secrecy jurisdictions.

Yet, the argumentation TJN uses to get to its facile secrecy jurisdiction conclusion bears consideration because it exposes a specific attitude as well as a number of preconceptions about Luxembourg as a banking and financial centre that many detractors share. And a lot of it has to do with size.

I should probably start with the initial factual error that triggered the TJN blog entry, by saying that Luxembourg's ranking in terms of GDP per capita is completely skewed. Not just in the CIA Factbook, but in any similar ranking. The truth is that more than 130,000 cross-border workers come to work in Luxembourg on a daily basis to contribute to our GDP. That is a lot of people for a country with a population of 500,000. When it comes to dividing the GDP by the population to establish the GDP per capita, however, these 130,000 people have disappeared. I'm pretty sure that quite a few countries would rank significantly higher if they suddenly dropped over a fifth of their population from such calculations.

TJN then references IMF foreign investment flow figures to establish that "Luxembourg attracts over three and a half million dollars of investment for each and every of its 497,538 inhabitants, and invests an almost identical sum overseas."

Now, dividing foreign direct investment flows by the number of citizens of a country may generate impressive figures, but an argument it ain't.

Indeed, Tax Justice Network seems to believe that investment flows, if they are not to be considered shady, should be proportionate to a country's number of citizens.

Consequently, the organisation surmises that the Luxembourg financial centre only exists for Luxembourg. This is of course utter nonsense. It's like saying that Wall Street only exists for the State of New York or that the City is only there for the citizens of London. Both London and New York are in fact financial hubs for their countries as well as for the rest of the world. Similarly, Luxembourg is an international financial centre within Europe. The country specialises in the distribution of cross-border financial services and products. The size of the population is completely irrelevant to this reality. Indeed, in an open global economy, why should or would Luxembourg limit itself to its modest domestic market?

Because it illustrates a common bias, the following paragraph is worth citing in its entirety: "So wherein lies Luxembourg's success? Not in steel, which has long since diminished in importance, nor in agriculture, which accounts for a mere 0.4 percent of GDP. According to national income stats, services (86 percent of GDP) provide the powerhouse to the domestic economy, with offshore financial services being the principal motor driving downstream activity in construction, retailing and hospitality services."

Reading this, I got the distinct impression that TJN believes the services industry to be somewhat less worthy as an economic activity than manufacturing or agriculture, that exporting banking and financial services is particularly objectionable as an economic activity, and that economic success is unmerited if 86% of a country's GDP is composed of services. Yet, just because Luxembourg's sources of iron ore have dried up, doesn't mean that the country should be condemned to cultivating potatoes and living on EU subsidies. Exporting services, and not just financial services, is how a small country with limited natural resources can play a significant international economic role. It is precisely how it adds value in a global economy. There is nothing reprehensible about this reality.

In its conclusion, TJN says that "it doesn't take an advanced degree in economics to come to the conclusion that while the IMF cross-border investment data might be accurate, it highlights a fascinating but unexplained story about the role of secrecy jurisdictions in global investment flows."

TJN is definitely right about one thing: you don't need an advanced degree in economics to come to this conclusion. In fact, all you need is a good dose of ignorance and a bit of imagination in interpreting figures so as to make them suit your conclusions.

Last week, the French Senate discussed the taxation of electronic services and internet activities. In this context, the French business daily Les Echos made a telling statement in an article on why France is missing out on tax revenues relative to these activities: "France, which is trying to convince other European countries to tackle the issue, is facing fierce opposition from Ireland and Luxembourg." They failed to specify, however, that this issue has been settled for quite some time by European regulations, applicable in France just as much as in Luxembourg.

As a small country with an important international banking and financial centre, Luxembourg has become somewhat used to such misconceptions and even deliberate disinformation. But the nonchalance with which certain members of the press habitually make such false statements does not cease to surprise me.

The simple truth of the matter, of course, is that Luxembourg, like many other European countries, applies a VAT rate of at least 15%, as foreseen in EU law. And, as of 1 January 2015, the Grand-Duchy, along with everyone else in Europe, will switch to a system where VAT is charged in the country of residence of the client rather than the country of the supplier of electronic services.

The fact that Luxembourg applies the standard European rate of 15% is merely down to the fact that we traditionally prefer a socially more just direct taxation to an over-reliance on indirect taxation. That the standard VAT rate of at least 15% is perfectly in line with European regulation might irritate some member states, but there is nothing more sinister to it than that.

There is of course an easy solution to this tax revenue conundrum.

Nothing in the European texts forces France to apply a rate that is higher than 15% (despite the fact that France, for its part, appears to want to impose its national VAT rate on other countries). Rather than complain about so-called "unfair" tax competition, why not simply lower the VAT rate to the standard 15% foreseen in European legislation? Unsurprisingly, this is no guarantee that internet companies and electronic service providers will flock to France. Luxembourg did more than apply the lowest standard European VAT rate. As in the world of banking and finance, Luxembourg worked hard to develop the necessary expertise and to establish the regulatory, technological and business environment that successful international companies rely on.

http://www.luxembourgforict.lu/en/international-scoreboard/ict/index.html

In connection with banking, the meaning of the word "offshore" is obvious. According to Wikipedia, "An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages". The term 'haven', meaning a harbour, has been mistranslated in French to produce the expression paradis fiscal, that is to say a heaven and not haven.

At its roots, the term offshore refers to a place that is located away from the mainland, an island for instance, or an oil platform. Used as an adverb, it can also describe a movement, e.g. the wind blowing or a boat moving away from the shore, or off the shore.

The term offshore bank has its origins in banks that were established on the British Channel Islands.  However, many so called offshore banks are located onshore. The origin of low taxed financial jurisdictions can be traced back to the Middle Ages when trade wars arose between different countries and regions competing for economic dominance.

Reasons to locate banking centres on islands were quite simple: direct central control remained loose and weaker in terms of geography, law and historic allegiance than on the mainland. The offer of an offshore remedy of lower taxation and promises of anonymity and confidentiality as well as political stability were attractive to wealthier clients.

In the modern period, it is commonly accepted that the definition of offshore jurisdictions as tax havens was first formed after World War I. However, in the post-war years, companies became over-burdened by taxation. This is when corporate tax havens and the offshore tax industry were born. Companies were able to take advantage of tax treaties between their country and the offshore tax jurisdiction to reduce liabilities.

During the recent financial crisis, the word was used as a synonym for tax haven or tax shelter. Avoiding any logical reflection the term is used to describe foreign banks, corporations, investments, and deposits. Companies are moving offshore for reasons of tax avoidance or relaxed regulations. Banking transactions with non-residents are called offshore.

In recent years, a growing demand for regulated products and trends in tax harmonisation have further muddied the picture. The OECD has defined a set of terms that differentiate an International financial centre from a tax haven, and these terms are pretty clear. However, the definition of a tax haven often lies in the eye of the beholder.

"The European Lifelong Learning Index (ELLI) is an annual measure of Europe's "state of play" of learning throughout the different stages of life from "cradle to grave" and across the different learning environments of school, community, work and home life. The ELLI Index measures learning in four different domains taken from the UNESCO framework completed by Jaques Delors that include learning to know, learning to do, learning to live together and learning to be. "

Luxembourg lies in fifth place out of 23, having scored well in the following areas:

•    Social democracy

•    Comprehensive education system

•    Integration of vocational education and training with the learning needed for university, lifelong learning and democratic
     participation

•    Possibilities for civic participation (volunteering, political participation, trust and tolerance)

•    Achievement in work-life balance (participation in cultural activities), called "Learning to be" in the study.

The last point strongly influenced the position of Luxembourg in the study.

http://www.elli.org/

Certains observateurs et média  (voir p.ex. Trends-Tendances du 12 août 2010) reprochent au Luxembourg de faire trainer le dossier fiscalité de l'épargne. Dans les faits, ce n'est pas le Luxembourg mais les partenaires européens qui font trainer les choses.

Comme nous le savons, le monde a changé depuis 2000, année où l'accord sur la fiscalité de l'épargne entre partenaires européens a été  passé:

• Un nouveau Gouvernement supranational auto-proclamé a vu naissance, à savoir le G20. Ce même G20 a adopté des standards de lutte contre la fraude fiscale, à savoir l'échange de renseignement sur demande conformément aux conventions standard de l'OCDE. Le Luxembourg a signé plus de 20 accords en ce sens. Ce standard est devenu la nouvelle norme internationale. Elle dépasse et remet en cause les accords européens de 2000. Ce standard est devenu la norme de coopération, de la Chine au Brésil en passant par Hong Kong, Singapour ou la Suisse.
• Le régime de la directive est discriminatoire à un double titre. D'abord il discrimine les centres financiers à l'intérieur de l'UE par rapport aux grands centres financiers hors de l'Union Européenne dont certains ont des taux de croissance vertigineux. Il discrimine également par rapport aux législations internes des pays européens. Ainsi les banques belges, françaises ou allemandes ne sont pas assujetties à des contraintes de reporting automatique pour leurs propres résidents nationaux. En revanche, les banques d'un pays tiers (luxembourgeoises en l'occurrence) le sont pour des services transfrontaliers à ces mêmes personnes. La directive fiscalité de l'épargne énonce d'ailleurs elle-même le principe de la non discrimination en dans son 4ème considérant.
  

Si le dossier fiscalité ne progresse pas, ce n'est donc pas la faute aux Luxembourgeois mais bien à ceux qui nient non seulement ces évidences, mais qui nient l'existence et la légitimité pure et simple du marché européen des services financiers. Depuis la fin des années 1980 il est légal de placer son argent à l'étranger. Des conditions équitables devraient dès lors être créées pour tous les intermédiaires financiers opérant sur ce marché sans privilégier l'épargne domestique.