Luxembourg defends banking secrecy

By Huw Jones and Philip Blenkinsop

LUXEMBOURG, March 18 (Reuter) - Luxembourg will not dilute its bank secrecy rules and is against hasty changes to European Union law that taxes foreign savings, the Grand Duchy's Treasury Minister Luc Frieden said.

Countries used by investors to salt away cash outside their home state have come under the spotlight since a spat developed between Germany and neighboring Liechtenstein, which is not a member of the 27-nation EU.

Many wealthy Germans were found to have parked money in the tiny Alpine tax haven to avoid the taxman back home.

Germany persuaded the EU's executive European Commission bring forward a review of the bloc's savings tax directive to May in a bid to make it harder for investors to escape the net.

The 2005 rules only tax cash deposits while trusts, stocks and bonds are outside their scope, but Luxembourg won't be rushed.

"I'm amazed that some people want to change this directive even before having had any evaluation about how the current system works," Frieden told the Reuters Funds Summit.

The current directive took years to agree as unanimity among all the bloc's members is needed in tax matters.

Luxembourg, Austria and Belgium won the right to a watered down version in return for introducing a withholding tax.  Continued...