10 years after: The ABBL’s thoughts on the end of tax secrecy

The article examines the implementation of the Common Reporting Standard, the significant investment made by Luxembourg banks, the evolution of private banking and the need to balance effective tax transparency with GDPR requirements and the protection of personal data.

On the triggering effect of this development

Camille Seillès (CS): “initial steps of exchange of information–on demand– started briefly after the global financial crisis in 2007-2008 and became increasingly generalised, including in Luxembourg and Switzerland.”

On ABBL’s and Luxembourg stance on this issue

CS: “From the outset, the ABBL has been promoting the exchange of information to ensure a fair competition between the financial participants and the financial centres.”

CS: “Luxembourg chose the most robust and recognised approach at the international level.”

CS: “Luxembourg did not aim at the implementation ad minima of the Common Reporting Standard (CRS) but rather to an extent as wide as possible for everyone.” “Luxembourg could ill afford, for political reasons, to be non-compliant in the implementation of the CRS.” “Being partially compliant could not have been envisioned […] given the perception it would have communicated.”

The ABBL at the heart of discussions at European level

The European Commission created a committee (“expert group on the automatic exchange of financial account information”), which ran from 2014 to 2017 and included the French banking federation, the British bankers’ association, the European banking federation and … the ABBL, demonstrating the importance of Luxembourg being represented at the table.

On Luxembourg banks’ commitment

CS: “It is estimated that the cost for the implementation of Fatca and CRS were around €150m to our members with recurrent charges of €10m to €15m per year. Luxembourg is one of the countries that invested the most on financial transparency”.

On the impact of this measure

CS: ” The end of tax secrecy for non-residents has had a positive impact on Luxembourg’s position as a global financial centre on the back of better perception toward the country as an actor playing by the rules”.

CS: “The end of banking secrecy for non-residents in Luxembourg accelerated the positioning of some private banks and certain evolutions which were anyway unescapable.”

Fabio Mandorino (FM): “Suddenly opportunities opened for Luxembourg bankers who could start discussing remaining assets in based in other countries with comprehensive solutions for their clients”.

FM : “Luxembourg private banks can deploy a team of experts to address international tax and legal challenges to offer a palette of services that cannot be found, he claimed, in France or Germany”.

FM: “Assets under management in private banking have increased from €271bn in 2007 to €599bn in 2021 […] against all expectation by its neighbouring countries.”

FM: ” Private banks saw an increase of assets coming from the UK and Switzerland on the back of Brexit to maintain access to the single market, from Italy and Spain due to their unstable regulatory framework, and from Eastern Europe but at a low level”.

FM: “Brexit broadened the geographical spectrum of the financial institutions opening or expanding business in Luxembourg”.

On challenges and future developments

CS: “There is a fine balance to reach between the combat of tax evasion transparency and the protection of personal data as guaranteed by the EU’s General Data Protection Regulation (GDPR)”.

CS: “Before considering any further extension of the reach and the details included in the exchange of information, it would be preferable to assess the current framework. […] By defining what is indispensable and limiting information that is automatically communicated to the existence of accounts and the yearly balance only. […] This would reduce the risk of a judge eventually ruling that the content of the exchange of information does not comply with the GDPR’s requirements”.

CS: ” The intention is not to reduce the scope of the overall regulation as the tax authorities have the means and the tools, given that they may demand additional information as appropriate. But an adverse ruling forcing the regulation to backtrack would be a negative outcome with far-reaching political and financial consequences for EU member states and financial institutions”.

CS: “New iterations are necessary to avoid that some asset or tools may be used for tax evasion. The Dac 8 will bring credibility and serenity on those products.”

CS: “Both processes–the automatic exchange of information and on-demand exchange of information–will continue to coexist as they complement each other. […] The automatic exchange acts as a screening tool to identify assets abroad that may not have been declared. […] It has a dissuasive impact of the regulation on the behaviour of taxpayers”.