What should everyone know about tax havens

What are the new Luxembourg searches of Süddeutsche Zeitung?

Since September 2019, the Luxembourg tax haven has been disclosing in a database for everyone who the actual owners of companies based in the Grand Duchy are. This was previously a secret at thousands of companies. On the initiative of the French daily newspaper Le Monde has the Southgerman newspaper Systematically analyzed the information from the new register together with several media partners. The research shows that about half of the Luxembourg companies are missing the promised information or are misleading. Often the information is obviously wrong. Above all, however, it shows that Luxembourg is still one of the preferred financial centers for wealthy people and large companies who want to avoid taxes.

Who was involved in the research?

The French daily newspaper Le Monde initiated the joint research. In addition to the Süddeutsche Zeitung The journalists' network Organized Crime and Corruption Reporting Project (OCCRP), the Belgian newspaper, also took part Le Soir, the Luxembourg weekly newspaper Woxx as well as the American media group McClatchy, which among other things has the Miami Herald issues. The results of several months of research are published under the title OpenLux.

How exactly did the researchers proceed?

Since 2019, Luxembourg has maintained a register in which one can see the beneficial owners of companies. However, it is not possible to simply enter the name of a celebrity, for example, in the search mask to find out whether he or she owns companies in the tax haven. You have to know the company name before you can find the owner. That's why Le Monde the data is scraped (i.e. systematically downloaded) and made searchable in such a way that it is also possible to find individual names in a targeted manner.

Who uses the Luxembourg tax haven?

According to the researched data, three quarters of the Luxembourg companies that provided information at all belong to foreigners. The company owners include men and women from 157 different countries - including around 4600 people from Germany. More than 250 billionaires are listed as company owners in the Luxembourg Transparency Register. The assets of the holding companies based in the Grand Duchy alone amounted to at least six trillion euros in 2018 and 2019.

Is it illegal to own a company in Luxembourg?

No, it is not illegal per se as long as the tax office is informed about the company and the corresponding cash flows. Even if this is the case, the question remains whether it is legitimate and in solidarity for a country, through its favorable tax legislation, to help multinational corporations and wealthy people avoid or save taxes in their home countries. With these tax avoidance constructs, it is often only possible to clarify later whether they are legal or illegal. In 2017, the EU Commission asked Luxembourg to demand a further 250 million euros from the internet mail order company Amazon - the Grand Duchy, however, is reluctant.

What harm does Luxembourg's behavior cause to other countries?

According to an analysis by the non-governmental organization Tax Justice Network, the member states of the European Union alone lose more than 20 billion euros every year through tax avoidance. At the same time, non-transparent company structures, such as those offered by Luxembourg, are regularly used by criminals to launder their illegally earned money. Money laundering is the greatest threat to Luxembourg, said the Luxembourg Ministry of Justice in September 2020.

Investigators and experts see an increasing risk of money laundering in investment funds, of which around 15,000 are based in Luxembourg. Only those company owners who own more than 25 percent of a company need to be named in the state's transparency register. In the case of investment funds, some of which belong to fractions of hundreds of investors, it remains a secret who is behind them.

Who invented it?

Jean-Claude Juncker is considered one of the architects of the Luxembourg tax haven. From 1989 to 2009 he was finance minister and from 1995 to 2013 he was also prime minister of his home country. Under him, the Grand Duchy became what it is today. For example, under Juncker the practice of tax rulings developed - tax deals that large corporations concluded with the Luxembourg state. As a result, multinational companies paid tax rates of less than one percent in some cases.

Are there any other tax havens in the European Union besides Luxembourg?

Yes, among experts, in addition to Luxembourg, at least Malta, Cyprus, the Netherlands and Ireland are also tax havens. Some critics also include Hungary and Belgium in this category of states. Through the practice of tax havens, other countries escape billions in taxes - money that is then lacking there to maintain hospitals, to buy corona vaccines or to create crèche places, for example.

In the past few years the media around the world have reported about the tax haven Luxembourg. What were the consequences?

Luxembourg abolished banking secrecy in 2013. After the so-called Luxembourg Leaks revelations in 2014, in which the Southgerman newspaper was involved, a special committee of the EU Parliament criticized the Luxembourg practice. The number of tax rulings, the secret agreements in which Luxembourg has approved tax rates of sometimes less than one percent for large international corporations, has fallen sharply. The authorities of the Grand Duchy are also exchanging more information with other countries.

Luxembourg's Finance Minister Pierre Gramegna told the French daily Le Mondethat his country has opted for "tax transparency" and fulfills all requirements of the EU and OECD in this regard. The Luxembourg Ministry of Justice points out that Luxembourg is one of the few European countries to have made the real owners of companies "accessible to the general public without restrictions" in a transparency register.

How transparent is Germany?

In Germany there has been a transparency register since 2017 - it falls under the responsibility of the Federal Office of Administration and is managed by a private company: the Bundesanzeiger Verlag. Unlike in Luxembourg, in this country you have to register with your name, date of birth and address and leave a copy of your ID in order to be able to inspect it. In addition, each retrieved document costs a fee of 1.65 euros. However, much of the information is not complete here either. Since the introduction of the register, fines have been imposed in more than 3,000 cases and warning fines in more than 6,000 cases because information has not been given or is incomplete. "We need a transparency register that lives up to its name and creates transparency and not frustration," calls for Lisa Paus, Member of the Green Parliament. So far, the German transparency register is nothing less than a "data waste dump".