Billions and billions of euros belonging to Dutch savers are hidden away in Luxembourg bank vaults; the money is safe from detection by the Dutch tax office thanks to the banking secrecy laws in the Grand Duchy. Safe for now but for how much longer? Brussels is demanding banking transparency, but Luxembourg is resisting.

“I don’t know how they manage it, but it’s dirt cheap here," says a Dutch motorist filling up at a Luxembourg petrol station. 

“It's 17 cents per litre  cheaper here. Luxembourg is in the EU as well but apparently the country doesn't need the tax revenue as much as we do in the Netherlands. I guess they don't fritter their tax money away,"

He's got a carton of cheap cigarettes on the backseat and he's ready to continue his journey to southern France. Before he pulls out, he laughs and says, “I've got nothing to complain about, I'm doing all right but buying stuff cheap in Luxembourg is part of the fun of driving to France."

Secrecy laws
When ordinary people think about Luxembourg, two things spring to mind; low income tax and low VAT. When rich people think about Luxembourg, the country's banking secrecy laws spring to mind.

According to Fernand Grulms of Luxembourg for Finance, Dutch savers have an estimated 50 billion euros stashed in the Grand Duchy’s banks, “it could be a bit more, or it could be a bit less," he shrugs. The Luxembourg banking sector manages 320 billion euros for European savers and, thanks to the country’s secrecy laws, they are all anonymous and evade taxation in their countries of residence.

Tradition
Brussels passed a series of measures in 2005 to stop cross-border tax dodging,. Luxembourg and Austria, which also maintains banking secrecy laws, demanded exceptions. Since then, Luxembourg has voluntarily contributed revenues on behalf of their - still anonymous - clients to other EU member states. Fernand Grulms: “Financial privacy; it does still exist and our banking secrecy laws still on the books.”

"It's an old tradition that we don't want to just give up," says Pierre Leyers, chief economics editor of the Luxembourger Wort newspaper.

“It's not about tax evasion but about privacy. Rich people prefer it when the tax office doesn't know exactly how much money they have."

Double standards
However, the European commission has had enough of ‘traditions’ in the Grand Duchy and criticism, particularly of Luxembourg Prime Minister Jean-Claude Juncker, is mounting. It is ironic that in his role as chair of the Eurozone countries, Mr Juncker has repeatedly urged eurozone leaders to harmonise their financial policies and called for more transparency.

French President Nicolas Sarkozy’s criticism was particularly biting: 

“The time for double standards is over. You can't very well tell everyone else to be transparent and still maintain banking secrecy in your own country. It's just not possible, Monsieur Juncker.”

At home in Luxembourg, Jean-Claude Juncker still enjoys enormous popularity, even after 16 years as Prime Minister. The motto in the country is ‘we want to stay just who we are’ and most Luxembourgers feel safest with Mr Juncker at the helm.

Stefan van Look, chair of the Dutch Association in Luxembourg:

“I regularly see the prime minister going out for a sandwich at lunch time, no bodyguards whatsoever, and he always stops to say hello."

Small and smart
There are around 4,000 Dutch nationals living in Luxembourg and the vast majority of them work in the financial sector.

"We do pay less taxes here than in the Netherlands but make no mistake, Luxembourg is not a tax paradise. I look at it like this: if you're small, you have to be smart."

The EU is considering ways of expanding the 2005 guidelines, all of which will further impinge on banking secrecy laws. Stefan van Look comments: “Of course other EU countries want to try and get rid of Luxembourg’s banking laws; it’s better for their own banking sectors.”

Fernand Grulms is vehemently opposed to what he calls ‘discriminatory regulations’:

“If the European Commission wants to force us to give up our banking secrecy then it will have to conclude agreements with countries outside the European Union, such as the one agreed with Switzerland. If there are countries outside the European Union that maintain banking secrecy, Dutch savers will simply move their money across a different set of borders. Is that advantageous for anyone within the European Union? I don’t think so.”

(jric/imm)