Ethics and governance in the European Financial centers

Moves by a number of financial centres over recent weeks in favour of transparency and exchange of information on tax matters have given a welcome boost to efforts to counter international tax evasion, OECD Secretary-General Angel Gurría said yesterday.

While many jurisdictions still maintain arrangements that prevent them from assisting foreign authorities in tax investigations, recent actions and statements consistent with the OECD standards in this area on the part of some show that real progress is being achieved.


After Liechenstein, Andorra and Belgium, the three juristiction that met last Sunday - Switzerland, Austria and Luxembourg - offered concessions today, but insisted their bank secrecy principle remained intact.

Banking secrecy is legitimate for their citizens. It should not be opposable to foreign tax administrations.


The experience of the Luxembourg jurisdiction with the OECD unfortunately inclines with mistrust vis-a-vis these declarations:

Luxembourg cooperates in the framework of the Anti-Bribery Convention : but it is reluctant to implement international Recs. For example penal liability of legal persons required since a couple of years and today still neither enacted nor enforced.

Definitely reluctant, because the jurisdiction was able to change its constitution in a couple of months with a unanimous vote : The Grand Duke announced his refusal to sign a legal text on 2 December 2008. The project of revision of the constitution was filed in on 3 December 2008. The first vote took place on 11 december 2008. The second vote took place on 12 March 2009.


All these jurisdiction should not have a blank cheque : to be removed from the list they have to prove that what they are saying are no delaying tactics to avoid the registering on the blacklist. To encourage them, the OECD should build a grey list of these jurisdictions on the right track to be certain that the commitment will be actual.

Three jurisdiction that are said to be on OECD unofficial list of tax havens said today there are going to be more conciliatory :
- Andorra
- Liechenstein
- Belgium.

Which jurisdiction will be the last Mohican of banking secrecy opposable to foreign tax administrations ?
Switzerland ?
Austria ?
Or Luxembourg where Prime Minister compares banking secrecy to confessional secrecy while not having a tradition of banking secrecy in the jurisdiction?

In is answer to MPs the day before yesterday, Luc Frieden said that "en ce qui concerne les paradis fiscaux, il y a, à notre connaissance, une organisation internationale, à savoir l’OCDE, qui a établi des critères de qualification des paradis fiscaux. Parmi ces critères, le point de départ est qu’il faut qu’il s’agisse d’un territoire dans lequel il n’y a pas de fiscalité, ou une fiscalité très faible" (with regard to the tax havens, there is, to our knowledge, an international organization, namely OECD, which established criteria of qualification of the tax tavens. Among these criteria, the starting point is that it is necessary that it is about a territory in which there is no taxation, or a very weak taxation)

This is not the actual OECD framework on tax havens.

Four key factors are actually used by the OECD to determine whether a jurisdiction is a tax haven. These factors to be considered are :

Wether the jurisdiction imposes no or only nominal taxes.

The no or nominal tax criterion is not sufficient, by itself, to result in characterisation as a tax haven. The OECD recognises that every jurisdiction has a right to determine whether to impose direct taxes and, if so, to determine the appropriate tax rate.

An analysis of the other key factors is therefore needed for a jurisdiction to be considered a tax haven.

Whether there is a lack of transparency

Transparency ensures that there is an open and consistent application of tax laws among similarly situated taxpayers and that information needed by tax authorities to determine a taxpayer’s correct tax liability is available (e.g., accounting records and underlying documentation).
The absence of balance sheets database is evidence of lack of transparency in Luxembourg. Secrecy is opposable to foreign tax administration in Luxembourg while the professionals of the financial sector help with tax avoidance


Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the no or nominal taxation.

With regard to exchange of information in tax matters, the OECD encourages countries to adopt information exchange on an “upon request” basis. Exchange of information upon request describes a situation where a competent authority of one country asks the competent authority of another country for specific information in connection with a specific tax inquiry, generally under the authority of a bilateral exchange arrangement between the two countries. An essential element of exchange of information is the implementation of appropriate safeguards to ensure adequate protection of taxpayers’ rights and the confidentiality of their tax affairs. Banking secrecy is opposable to foreign tax administration in Luxembourg while the professionals of the financial sector help with tax avoidance

Whether there is an absence of a requirement that the activity be substantial

The no substantial activities criterion was included in the 1998 Report as a criterion for identifying tax havens because the lack of such activities suggests that a jurisdiction may be attempting to attract investment and transactions that are purely tax driven. In 2001, the OECD’s Committee on Fiscal Affairs agreed that this criterion would not be used to determine whether a tax haven was co-operative or unco-operative.
It is a key problem in the Luxembourg jurisdictions where the Corporate Registration is full of possible scams connected to other tax havens like the Seychelles, the BVI, Panama...


When Luc Frieden says that the starting point is that it is necessary that it is about a territory in which there is no taxation, or a very weak taxation, this is not what the OECD is stating : the OECD specifies that it recognises that every jurisdiction has a right to determine whether to impose direct taxes and, if so, to determine the appropriate tax rate. An analysis of the other key factors is needed for a jurisdiction to be considered a tax haven. I am afraid that the three additional criteria are met in Luxembourg.

Read OECD criteria