Ethics and governance in the European Financial centers

The European Commission has decided to refer Luxembourg to the European Court of Justice over its incorrect application of certain provisions of the Savings Tax Directive as regards interest payments made to beneficial owners who benefit from so-called "non-domiciled resident" status in their country of residence.

Luxembourg refuses to apply the Directive to beneficial owners who benefit from the so-called "non-domiciled resident" status in their country of residence. Consequently, Luxembourg paying agents do not levy withholding tax on interest payments to such beneficial owners.

The Commission considers that Luxembourg's legislation, in its current state, is not compatible with articles 2, 3, 10 and 11 of the Directive that are fully applicable as they are not in the scope of the transitional period that apply for Chapter II (article 8 and 9) as defined in article 10 of the Directive.

Given that the above Luxembourg tax rules were not amended following the reasoned opinion sent by the Commission in November 2008 (IP/08/1815 ), the Commission has decided to refer the case to the European Court of Justice.

There are three observations:

Luxembourg is unable to abide by every applicable commitment of the Directive. I am afraid that Jacques Santer was not telling the truth when he recently stated that “le Luxembourg applique également les directives européennes” (free translation “Luxembourg also implements the European directives”). Knowing that Jacques Santer is Chairman of the Board of Directors of the Luxembourg Institute for Global Financial Integrity (LIGFI) , this is not of good omen for the credibility of the mission to promote the principles of integrity, which are fairness, transparency, responsibility and accountability.

The European Commission should refer Luxembourg to the European Court of Justice over its incorrect application of certain provisions of the UCITS directive as it is established that the minimum high level principles of the UCITS Directive have been transposed in very diverging ways by Member States, which means that some EU investors in UCITS funds are better protected than others. The Madoff affair did not occur by chance in Luxembourg as I demonstrated.

The European Commission is more credible than the OECD, for jurisdictions that do not respect their commitments: the criminal liability for legal persons is not enforced in Luxembourg despite an injunction last year, and the statement that the OECD's Working Group on Bribery “reserves the right, in the event of continued failure to implement the Convention, to take further steps” seems to be a charade all the more than Angel Gurria’s statement that “Luxembourg has joined the international drive to combat tax havens and is moving swiftly towards substantial implementation of the OECD standard” does not comply with the reality as observed by the European Commission.