Brussels (Brussels Morning): Known for attracting financial holdings by allowing so-called aggressive fiscal planning, Luxembourg is once again the focus of allegations – this time by a research consortium — about its compliance with recent changes to the EU’s anti-money laundering directive. Luxembourg did introduce a new register to disclose just who the ultimate beneficiaries hiding behind layers of holding companies might be. Beneficiary owners in this context are the indviduals controlling the income or assets of companies registered in the name of others in order to protect the real dentity of those who actually acquire the profits.
Information missing from register
The problem with the Luxembourg register is that it is not reliable when searching for individual ownership names. Even when checked by company name, some 80%t of the investment funds and 90% of the mutual funds registered as companies do not reveal the actual beneficiaries, according to an analysis by the OpenLux database. This consortium consists of the Organised Crime and Corruption Reporting Project, Transparency International plus Le Monde, Belgium’s Le Soir and assorted Luxembourg media. A further problem is that the identity of beneficiary owners is only available if they hold at least a quarter of the company in question. Nor is there a satisfactory verification mechanism for the accuracy of the information listed for over 100,000 companies formally based in Luxembourg. Also, among Luxembourg-based investment funds known to hold some €4.5 trillion due to inflow of foreign capital, only a fifth disclosed their beneficiary owners.
One of the research group’s findings is the extent to which Russian capital has made its way to being deposited in Luxembourg. This has made the country one of Russia’s biggest foreign investors given the Russian capital circulating via transfers to and from accounts in Luxembourg. Researchers and journalists who teamed up to search the register for beneficiary owners of capital within the country, cite funds originating from organised crime, weapons dealing and the Italian mafia that have ended up in Luxembourg. Coincidentally, once the register was established, a great number of companies were deleted from the database, according to Transparency International’s report.
Luxembourg’s lax corporate tax regime, attracting multi-nationals against the promise of paying only a minimum amount in tax on profits by running those through complex company structures, has long been the focus of debates in the European Parliament, where calls have been made repeatedly for an end to tax avoidance schemes.
”This is morally unacceptable, and it is shameful, as well as incompatible with having a level playing field for corporate taxation in the EU,” Finnish MEP Sirpa Pietikäinen with the Conservatives’ EPP declared. She has been pushing for measures to tackle money laundering through the beneficiary ownership registers.
”The true beneficiaries should be disclosed, this is how they remain hidden behind these holding company structures,” she said.
Pietikäinen remains confident that there has been some progress since EU anti-money laundering rules have been tightened in recent years. Even so, issues of verification and exchange of information remain.
”We should improve on the EU rules by adding the requirement of a tax index number both for companies and individuals. That way, the fiscal authorities could access the information across Europe, even though the ownership would be arranged through various structures. As it is, fiscal authorities can put forward requests, but how would they know where to ask as long as that information is not public?”
Luxembourg claims compliance with rules
Accused of allowing investment funds based in the country to continue to operate in an opaque manner, the Luxembourg government put out an edict in its defence, saying it is in compliance with EU rules. The paradox of Luxembourg’s tax avoidance practices offered in deals with multinationals was much debated during the previous Commission President Juncker’s term when he committed to tax avoidance, despite having headed the Luxembourg government when the schemes were expanded.
”Luxembourg clearly remains central among the fiscal havens in Europe,” Finnish MEP Eero Heinäluoma with the Socialist group cmmented to Brussels Morning. ”It is destructive to let tax avoidance and money-laundering spread like a virus,” he added. ”Instead, I would expect the European Commission to put forward a proposal for a binding legislative act this spring so there would be efficient action to tackle governments sidelining anti-money laundering efforts.”
Luxembourg is not the only jurisdiction known for its financial services industry. Off-shore tax havens include the British Virgin Islands, known for allowing the swift setting-up of shell companies, as well as Panama. The Cayman Islands has its hedge funds while Switzerland manages private wealth on offshore accounts in a secretive manner.The Luxembourg government maintains it cooperates closely with other jurisdictions with reference to the anti-money laundering directive.
”The country is a thriving intra-European tax haven,” was German Green MEP Sven Giegold’s reaction.
”If Luxembourg denies being a tax haven, this can only be described as fake news. Luxembourg shows no remorse whatsoever, even though its tax policy causes massive financial damage to other EU countries.”