Luxembourg and Liechtenstein Enter Talks on Tax Agreement

This was reported in international news media over the weekend. As the language used by news agencies adds a little confusion to the confusion that exists anyway over OECD standards, it is probably going to be an agreement on exchange of information on tax matters between the two countries. Compliance with those OECD standards is the goal.

This is of course in response to both countries’ grey-listing by the OECD/G20 duo in April. It is somewhat funny that OECD criteria to get off the grey list are to have at least 12 of those bilateral agreements in place. This sounds a little bit bizarre as a behavioral code between nations, and is reminiscent of boy scouts collecting badges. There will certainly be some jokes about which exotic place exchanges badges with which other one.

Luxembourg has to have a lucid look back at its mismanagement of the tax haven issue. It has surfaced more than 10 years ago. Initially at least, it was alright to consider an emerging issue at a dusty place like OECD with benign neglect. International organizations tend to shove the same paper around for years, with no tangible result. But then more recently, it totally misread the cues.

By 2002, a number of countries had signed up to the OECD standards, and more pressure developed as of 2004 at G20 levels and at the UN‘s meeting on cooperation on tax matters in 2008. At the same time even more pressure came from various groups, such as NGO’s. The ultimate warning should have been when in the US Senators Levin and Obama sponsored the Tax Haven Abuse Act. It put Luxembourg squarely on the list of abusive tax havens.

- As of September 2008, no one at the Luxembourg Government could be reached on the topic of the looming problem.
- Luxembourg chose not to attend the November OECD meeting in Paris.
- Luxembourg was still pursuing the vain defense of its banking secret until April this year. It had limited temporary success with a coalition of 3 European tax havens, with written commitments of OECD and EU that it would not be on any tax haven list. These commitments were broken within weeks. All these were good efforts for a not so good and already lost cause.
- Then Luxembourg got dragged into a public war of words that exposed the unfolding drama even more and left bruised reputations and egos on both sides of the dispute. It also left a number of European plans and ambitions in jeopardy.

Luxembourg has really arrived at the fork in the road. Good advice from someone who knows, Yogi Berra: "When you come to a fork in the road....Take it". It is important to let no one guess that the next agreement will be with Disneyland, a sarcastic assumption that there they go again, trying to fool OECD. It’s the other side of the fork in the road that goes into the right direction.

Banking secrecy is dead, if not in the eyes of Luxembourg officials, then in the eyes of the banking clients. What remains should be called “privacy” as it is for medical records. Or maybe “confidentiality” if it is not yet a dirty word.