The Newsletter | september 2012 Dossier East moving West ThE ChInESE dImEnSIon IT’S aLL In ThE namE WE FEW, WE happY FEW, WE band oF broThErS JapanESE bankS: WorLdS WIThIn WorLdS KPMG ThE TImE IS rIpE For rEForm Brussels ConFESSIonS oF a LobbYIST Insurance SoLvEnCY II Music roCk mE amadEuS ThE TImE IS rIpE For rEForm LFF: International investors perceive Luxembourg has developed faster when it Luxembourg as a stable country. has comes to specialised service providers, meet- it suffered a lot from the Eurozone’s ing every possible need of the industry. For- negative press? eign investors appreciate that they can buy a wide range of solutions that fit all their needs Gb: The key success factor for us is the at competitive prices. following: can we, as a small country, still find a growing region in the world that is willing to do major business with us? If China is do- LFF: Why is Luxembourg competitive ing well it doesn’t mean much to juggernaut in this area? countries like the US and Germany; but if we Gb: First of all, because we have a govern- can manage to attract business from China, ment that cares about the investment fund our economy prospers, even though the Euro- industry and listens carefully to the needs of zone is in turmoil. By the way, Luxembourg its practitioners. Secondly, Luxembourg has is number one in Europe when it comes to achieved critical mass due, historically, to its attracting Chinese foreign investments. Un- first mover advantage in adopting the UCITS fortunately, if you travel to regions like Asia or Directives. Our success is certainly not due to Latin America, they see the whole Eurozone tax reasons, because a lot of European coun- Georges BOCk, as a catastrophe because of the bad news in ties don’t tax investment funds at all, while the press. We, as Europeans, can weigh up the Managing Partner, KPMG we have a minimal tax. Thirdly, we are a very debate around the future of the Eurozone and attractive competence centre for promoters measure its nuances, but from the outside, If Luxembourg wants to wishing to distribute investment funds glo- press coverage gives the impression that bally. If all the laws around the world on fund remain competitive, it has to every country wants to leave the Eurozone. distribution were to go up in smoke, one day, focus on high added value That is definitely not of help to Luxembourg. I believe that in Luxembourg we would be able service industries and pro- to reconstruct a good part of it because we LFF: apart from its stability, what have people that are knowledgeable on every ceed to overdue structural are the particular assets that make aspect of that business around the world. Last reforms. This is the message Luxembourg attractive to foreign but not least, we have a regulator that has companies and investors? managed to preserve Luxembourg UCITS from of Georges Bock, who takes major turmoil, thus providing the Luxembourg over the helm as managing Gb: There is no one size fits all answer to industry with a first class reputation around the question. Let’s take the fund industry and partner of KPMG Luxem- the globe, while remaining constantly open to the service sector that is linked to this indus- innovation and new developments. bourg on October 1st. He is try, such as the structuring of investments in private equity, real estate and hedge funds well aware of the country’s for example. Around the fund industry there LFF: You recently said in an interview traditional strengths, but is an entire, highly efficient service industry that Luxembourg was at a crossroads. he also sends a message to infrastructure, which includes domiciliation What challenges does the country face? companies, accountants, auditors, lawyers political decision makers to Gb: A crisis is a catalyst for resolving long and all the other financial sector profession- standing structural problems in a society. undertake solid reform in als (PSF) that are needed in the framework The crisis started in 2008 and a lot of people order to prepare the country of reporting, communication of data, etc. thought that after a short rainy period the for coming generations. KPmg | P. 2|3 sun would come out again. That was short LFF: Should Luxembourg join the small country like Luxembourg and that the sighted. The government hasn’t been able countries willing to sign a bilateral government will help its industry by clear- to convince the population of Luxembourg agreement with the uS to exchange ing up, in bilateral negotiations, a number of that structural reforms in, for example, public FaTCa information? complex issues that exist in a financial centre budget, pension and the social security sys- like ours that serves the world. tem need to be started to ensure that future Gb: Qualified intermediary (Q.I.) was the generations still have the chance to be suc- first generation of FATCA. Right from the start, Luxembourg understood the key mes- LFF: In international media reports, cessful. One of the crucial questions to ask Luxembourg is, from time to time, is whether this country can be reformed. If sages of the Q.I. regime: the US was moving in the direction of making sure that it col- represented as a tax stealer. Where do you asked me the question right now, I would these clichés come from? be more likely to say no than yes. This crisis lected information about US taxpayers. If clearly shows that for the last twenty years we didn’t have these huge implementation Gb: In the European Union and elsewhere Europe has lived beyond its means, because costs, FATCA would be close to a non-event. around the world there exists the principle of governments have spent more money than It is the industry, and to a certain degree the free establishment of business. It is clear they had. In the long run, our attitude in the non-US customers, that will have to pay that these rules, which are complicated, are Europe and in Luxembourg has to change in for US compliance. Though FATCA will not not easy for the average citizen to understand. order to prepare a sustainable future for our drive Luxembourg out of business, it is an It is easier to understand that if the state has children. Structural reforms are overdue. important issue for us because we have an huge budget deficits and a colossal public international financial centre. We cannot debt, then you need to find a scapegoat. It is afford to be a black spot on the FATCA map. always more popular to make somebody else LFF: So far, the 27 Eu member States An intergovernmental agreement could help responsible for your shortcomings than to have not reached an agreement on to make sure that Luxembourg is recognised admit one’s own mistakes, so that is where giving a mandate to the European for playing its role. the clichés on Luxembourg come from. Commission to open negotiations with so-called third countries on the taxa- The climate on international taxation be- tion on savings income. What would LFF: Is the government in charge of FaTCa implementation, or the finance comes rougher at times when there are a an automatic exchange of information lot of governments with debt and deficits. mean for the Luxembourg financial industry? centre? Gb: Both have to play their part. For the Luxembourg does nothing other than apply EU directives and that is, by the way, not optional Gb: First of all the debate is mainly of rel- Government, the main question is whether as the European court of Justice constantly re- evance to the Private Banking industry, while Luxembourg should proceed to the signature minds certain EU Member States. Participation other banking activities and the fund industry of an intergovernmental agreement. If we exemptions, for instance, that are based on are not really concerned. It is also important can really be sure that implementation costs EU-directives, were not created to produce tax to point out that Luxembourg banks already will decrease by adopting such an agree- holidays but to avoid double taxation. Saying offer automatic exchange of information to ment, then the Luxembourg authorities will that we are stealing money maybe sells well, customers on request. Our three neighbour- sign a bilateral agreement with the US. I am but makes no sense. CW ing countries France, Belgium and Germany optimistic that there is something in it for a all apply a flat rate withholding tax system that gives their residents reasonable protec- tion against banks communicating personal data around. However, as soon as the same individuals cross the border, they would have to suffer automatic exchange. This is a far cry from equal treatment; it is discrimination by Georges Bock’s appointment as new Managing Partner of KPMG the system. As long as this situation persists, Luxembourg will be effective from 1 October, 2012. He started I do not feel comfortable with the automatic exchange of information, because the same with KPMG in 1991 as auditor and has been a Partner with the rules are not applied everywhere. As long as firm for 12 years. Mr Bock has led the tax department since 2009. we ensure a level playing field in the domestic He has been Global Chairman of the KPMG Funds Tax Network and cross border markets, I remain optimistic for the financial centre. since 2007. ConFESSIonS oF a LobbYIST Antoine Kremer is Head of the EU Repre- Antoine Kremer’s work can be divided into sentative Office of ABBL (The Luxembourg three parts.