Finance: “Little will alter” for most of Luxembourg’s financial sector after the Grand Duchy increases cooperation with foreign tax authorities starting in 2015, said the chief of a major consultancy.
Few firm and few clients will be touched by a seemingly huge change in the government’s financial sector policy, the head of one of Luxembourg’s largest advisory firms has said. The comments followed the announcement this week that the Grand Duchy will increase cooperation with foreign tax authorities.
Under the current system, a withholding tax is charged on all interest income, the majority of which is then transmitted anonymously to authorities in the client’s country of residence.
The withholding tax is waived when clients agree to the automatic exchange of information or when they have a “certificate of exemption” from their home country’s tax office, according to KPMG. However, the new “measure will have no impact on Luxembourg residents” who are not covered by the Grand Duchy’s policy change, the consultancy said shortly after the prime minister’s speech.
“Similarly, non-EU citizens will also see zero change as a direct result of the announcement, although ongoing bilateral negotiations with certain countries such as the US may bring further additions in the future. The effects of the measure will thus only be seen by EU citizens who do not reside in Luxembourg,” KPMG explained in a memorandum sent to press.
“Little” impact for funds
“Little will alter” for the backbone of the Grand Duchy’s financial sector, Georges Bock, the firm’s managing partner in Luxembourg (photo), said in the communiqué. Luxembourg funds are often distributed by non-Luxembourg intermediaries.
“This means that it is not Luxembourg rules that apply, but rather those of the banks’ home authority. A German bank selling a Luxembourg fund will find that they are subject to German rules, not Luxembourgish ones. This is already the case today.”
Bock noted that “over the past twenty years, it has been the fund industry and the extensive expertise developed in this area that has been the main engine for growth in Luxembourg. The new measure leaves the industry unscathed and ready to continue on its way.”
No “earthquake” for private banking
In the banking space, “many” high-end clients “have indeed plumped” for the automatic exchange of tax information already, so the government’s new measure “is unlikely to cause waves”, reckoned KPMG.
“For private wealth management, this does nothing to diminish from the skills and knowledge Luxembourg has built up over the years: the government’s announcement should not be the earthquake one would have thought,” Bock opined.
However, he concluded that “with other treaties and directives already in the pipeline, the financial services industry will have to hold its breath and wait to finally find out the full implications” of Luxembourg’s tax cooperation shift.