According to the “Bilateral Financial Secrecy Index” (PDF), released by the Tax Justice Network on 24 September, “the largest supplier of financial secrecy to EU member states is the US” and “four of the top 10 suppliers” are the Netherlands, Luxembourg, Germany and France. Other advanced economies--Switzerland, Hong Kong and Taiwan--figure among the top 15.
“The new research deals another blow to the idea that financial secrecy is limited to a few remote, palm-fringed islands operating on the peripheries of the world economy,” TJN stated in a press release issued on 23 September.
TJN defined financial secrecy as “services like shell companies and banking secrecy laws which enable money laundering, corruption, tax abuse and the financing of terrorism.”
Within the EU, Luxembourg was the largest provider of “financial secrecy” to Belgium, Estonia, Greece, Hungary, Italy, Lithuania, Poland and Spain, the TJN report stated. Luxembourg was the second biggest provider of financial secrecy to Cyprus, the Czech Republic, Germany, Latvia and Romania. Luxembourg was the third largest provider of financial secrecy to France and Sweden.
Criticism of US policies
TJN criticised the one-way nature of automatic exchange of tax information between the US and EU jurisdictions. From the organisation’s press release:
“While EU member states have treaties in place among each other and with other countries, not a single EU member state has secured a sufficiently reciprocal automatic exchange of information treaty with the US. The US alone is responsible for 22 per cent of the financial secrecy targeting the EU that is not covered by an automatic exchange of information treaty, making the US the EU’s greatest enabler of financial secrecy, which in turn enables tax abuse, corruption, money-laundering and the financing of terrorism.”
EU blacklist
The EU named 17 countries and territories to its then-new “list of non-cooperative tax jurisdictions” outside the EU in December. It removed 8 from the list in January, removed 3 and added 3 in March, and removed 2 in May. That means there are 7 jurisdictions on the list, as of 24 September.
However, the advocacy group asserted that the “EU’s blacklist has failed to include any of the top 10 suppliers of financial secrecy services to the EU”. It argued for an end to the blacklist in its press release:
“The Tax Justice Network is calling on the EU to shift away from its reliance on a tax haven blacklist that misses all major targets, and instead to impose a 30 per cent withholding tax on jurisdictions which have not signed up to automatic exchange of information treaties.”
TJN’s Markus Meinzer stated in the announcement:
“Our research shows that automatic exchange of information treaties are astronomically more effective at guarding against financial secrecy than the EU’s blacklist. We know encouraging transparency through withholding taxes works because it’s exactly what the US did to get EU countries on board with sharing information with US tax authorities. EU member states must get the world’s greatest enablers of financial secrecy, most obviously the US, to sign up to these treaties and play by the same rules, to keep our economies safe.”
International compliance
Luxembourg participates in the automatic transfer of tax information with other EU countries and has signed up to the OECD’s international “Beps” standards. The OECD noted a sharp decline on money channelled to Luxembourg-based “letter box companies” in 2017 and 2018 (PDF).
In recent years, Luxembourg banks have repositioned themselves away from banking secrecy. Some in Luxembourg have argued that tax optimisation does not always eliminate tax payments, but merely shifts them.
As of this writing, Luxembourg’s finance ministry and the US Treasury Department had not returned Delano’s messages requesting comment.
Share of overall financial secrecy supplied to the EU, according to the Tax Justice Network
- United States: 4.7%
- Netherlands: 4.0%
- Luxembourg: 3.8%
- Switzerland: 3.7%
- Cayman Islands: 3.4%
- Germany: 3.3%
- Japan: 2.3%
- France: 2.3%
- United Arab Emirates: 2.1%
- Hong Kong: 2.1%
- Turkey: 2.0%
- Bermuda: 2.0%
- Jersey: 1.9%
- Taiwan: 1.9%
- Guernsey: 1.9%