Another tax haven operator is going out of its way to defend tax evaders today. Luxembourg's Treasury Minister Luc Frieden said today with regard to the EU Savings Tax Directive:

The system of withholding tax works well. We transfer quite an impressive amount of tax to other member states of the European Union. I think we should not change things again that work well

The Grand Duchy's Central Bank Governor, Yves Mersch said:

Bank secrecy is for me part of our social consensus because confidentiality in a small country is extremely important for the maintenance of democratic rule. In larger countries you can have checks and balances through a multiplication of institutions which control each other

Frieden said Luxembourg was making sure that what he terms banking confidentiality did not lead to abuses but added:

If we reopen this discussion, it will be a very difficult discussion on how we deal with trusts, on how we deal with dividends. The last discussions lasted for eight or ten years, these ones would last for even longer. The Luxembourg government sees no need and will not come up with new proposals in this context and will not change the bank confidentiality rules as they have proven to be in the interest of a good working system in Europe. We think that the Commission has other things to do than come up with proposals that would lead to a system that does not work.

To deflect attention from his own country, no doubt, he suggested the Commission should put its efforts into signing up jurisdictions outside the EU to the savings tax rules, such as Hong Kong, Macau and Singapore.

The truth is that these Luxembourg officials know that what they are saying misrepresents the real situation. To date, and for several years hence the withholding tax will not ensure that the proper tax is paid by people hiding illicit funds in Luxembourg. Tax evasion using their country is no date as commonplace, or more so than that using the Channel Islands and Isle of Man, which we know to be rife. But they seek to deny the truth, in no small part because the withholding tax system rewards Luxembourg for hosting this criminal activity.

I think Luxembourg is whistling in the wind. As money gets very tight indeed for very many governments over the next few years as recession hits tolerance for those states that aid and abet criminal activity is going to be very limited indeed. Better to cooperate now, I suggest.

For a full summary of what is wrong with the EU STD, see this briefing paper.