Pay Pal has been mailing all its customers to tell them:

PayPal was granted a bank license with the Luxembourg bank authority. Under this license, PayPal will be regulated centrally by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg bank authority.

On 2 July 2007, your customer relationship will be automatically transferred from PayPal (Europe) Ltd. to PayPal Luxembourg.

It says this is because:

The transfer will enable us to market our service to online merchants across Europe and allow consumers to use PayPal in more places and ways across the web. Other eBay group companies, such as Skype and eBay, have an important presence in Luxembourg, so it makes sense for PayPal Europe to co-locate with them.

I don't believe that. There's nothing that can be done from Luxembourg that cannot be done from the UK, where PayPal (Europe) is now. I think there are three real reasons:

1. Pay Pal will pay less tax;
2. Pay Pal will not be as effectively regulated;
3. Information exchange will be harder. Luxembourg tries hard not to play that game. And tax authorities are increasingly asking for data. If that information is located in the UK tax authorities can now get it. That will be harder from Luxembourg. It's a tax haven that still promotes secrecy, after all.

I think those are the real reasons. And if that's the case the use of such mechanisms as PayPal as part of money laundering will increase. In that case this move is wholly irresponsible.

Thanks to Dennis Howlett for the tip off.