Brexit Drains Swamp in London, Creatures Head to Luxembourg

Tax planning for a post-Brexit world.

In its report on the “world’s worst corporate tax havens” last December, Oxfam rated Luxembourg in 7th place, behind Bermuda, Cayman Islands, the Netherlands, Switzerland, Singapore, and Ireland.

But the “City of London,” a largely autonomous square mile within London where the threads of global finance meet, was given a special mention: The number one “unexpected absence” from the list of the top 15 worst tax heavens. Oxfam’s report put it this way:

The UK’s City of London is at the centre of a web of Crown Dependencies and Overseas Territories, over which the UK wields both official and informal influence. The 14 Overseas Territories include the Cayman Islands, the British Virgin Islands and Bermuda, and Jersey is one of the UK’s three Crown Dependencies. As Jersey Finance, the official marketing arm of the Jersey offshore financial centre, puts it, “Jersey represents an extension of the City of London.”

There were plenty of reasons for financial outfits of all kinds to settle in the City of London. But now that Brexit will likely throw a monkey wrench into unfettered access to the European Union for these firms, they need to head to the continent. And tax haven Luxembourg appears to be a big beneficiary in a post-Brexit world.

Nicolas Mackel, the head of Luxembourg’s financial development agency Luxembourg for Finance told Reuters today that private equity firm Blackstone was among “three or four” major private equity firms that picked Luxembourg for their EU subsidiaries. But he wouldn’t name the other PE firms since they hadn’t yet made their decisions public.

One bank also decided to set up shop in Luxembourg, he said without naming names, while “10 to 20” are planning to expand their current operations in Luxembourg. He wouldn’t say which banks, but they all have operations in Luxembourg, such as J.P. Morgan Asset Management Luxembourg.

Four or five “big name” asset managers were also planning to set up operations in Luxembourg, Mackel said, following Prudential Investment Management and international asset manager M&G Investments in their decisions.

Until Brexit, companies in London can use “passporting” arrangements for selling their services in the continental EU. And they can hire people from other parts of the EU without any complications. These benefits might disappear with Brexit. Reuters:

Firms without regulated EU operations outside Britain say they are working on the assumption of a “hard Brexit,” where they will no longer be able to sell their services across the EU without an operation regulated by an EU member country.

AIG confirmed last week that it would establish its EU hub in Luxembourg.

Lloyd’s of London, the world’s largest specialty insurance market, will likely follow AIG to Luxembourg – rather than tax haven Ireland, as the Irish government had fervently hoped – according to “sources close to the matter,” the Irish Independent reported today.

“Three to four” insurance companies were close to deciding to set up operations in Luxembourg, including Lloyd’s of London, Mackel said.

Insurer Hiscox is still trying to decide between Luxembourg and Malta. Among UK-regulated ship insurers, top contenders include Luxembourg and Cyprus – and his country has been in talks with them, Mackel said.

And “five to 10” fintech companies have already picked Luxembourg, he said.

Most of the financial services firms who haven’t yet decided would likely do so “if not by the end of Q1 then at least by the end of H1,” he told Reuters.

Frankfurt, Paris, and Dublin are all vying to attract the financial Brexit refugees, those firms that need operations in the EU after Brexit. And they’ll likely offer special deals and concessions. But tiny Luxembourg, long lambasted within the EU as a tax haven that allows companies to dodge taxes in other EU member states, is looking like a hot property now.

In the US, the Financial Sector threw $2 billion at Congress during the Election. Biggest spenders? Not the banks. Read…  Why No One’s Going to Drain this Swamp

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  21 comments for “Brexit Drains Swamp in London, Creatures Head to Luxembourg

  1. cdr says:

    Are we seeing the balloon being squeezed or is it being drained under pressure? I hope the latter but it’s too soon to say for sure. Too many intelligent cockroaches who know how to scurry out of the light to declare any more than an inconvenience. Today.

    I’m an optimist and believe a major strong effort will be required to change direction. The trend is positive. A false flag war or the equivalent, possibly conspiracy of false charges beyond media harping, is needed to change direction back to the dark side.

  2. Tom kauser says:

    Its akin to the Beatles living in one flat but each having their own door?
    The state is dead ; long live the estate?
    (They are fighting each other down range 24/7 South of colo sprgs boom boom)

    • TJ Martin says:

      ” (They are fighting each other down range 24/7 South of colo sprgs boom boom) ”

      An explanation if you would good sir ?

  3. Petunia says:

    Luxembourg has become the place to go to store physical assets since the financial crisis. The 0.1% have been storing art, gold, and anything else they want to hide there. I doubt the country is big enough for all the booty they will try to stuff into it, but they will keep trying.

    • Paulo says:

      You would think the participants would scurry to a warmer and better climate to conduct their skim and tax avoidance? Spain, Greece, or Portugal sounds better than London, Lux, or Ireland. Plus, better housing costs, recreation, and food choices. Of course we just finished off a cold winter so I am a little jaded about cold and dreary climates. Plus, I worked for a living and taught my children to be honest and good citizens, which has only added to my cynicism. :-)

      • TJ Martin says:

        Warmer climates usually equates to less stable politics which does not bode well for the participants in question

        Whereas Luxembourg is 2nd only to CH when it comes to stability and rule of law

    • TJ Martin says:

      But CH still holds 65% of the worlds wealth within its border .

  4. Flying Monkey says:

    Luxembourg is an interesting place. I live in Germany across the border in Saarland Germany (Saarbrecken) 104 km away. I worked there in 2015 as a contractor for a few months for a manufacturer of sensors. Much of the manufacturing was done overseas They had a few quality issues and I was hired to help out for a while.

    I had the impression it was an artificial economy where they do nothing there but live off other people’s money. It seems anyone doing manual labor or worked in the trades came from abroad. Drive along Kirchberg (the modern business area) and all you see are banks, lawyers and and consulting companies.

    They all drove nice cars, drove fast, and the traffic around the city was terrible. Only the guys who made real money lived in Luxembourg. The rest drove in from Germany, Belgium or France.

    I did not want to drive in every day from Germany like a lot of their workers do. First it is too much time on the road (danger wise) and secondly the commuting time would kill you.

    I could not find any place to stay so I stayed at the Youth hostel for 7-8 weeks. They really have a housing problem there. There were lots of job openings there, but few places to stay. The hostel had quite a routine crowd week to week made up of the same people. They were all young professionals looking for work or else had a job and were on there probation time since they did not want to commit to an expensive apartment until their job completed their probation time. It is so bad there the hostel limits the number of overnights to 50 in a year.

    A single guy I worked with was paying 850 Euro/month for a room in a shared apartment. The hostel was a bargain at 22/night. I only stayed there 4 nights a week.

    If you are a swimmer (Wolf?) they do have an excellent 10 lane 50 meter pool (Coque) with great hours up on Kirchberg which is only 2.5 km from the Hostel down by the river.

    • Wolf Richter says:

      I used to work in Belgium for three years and had dealings with entities in Luxembourg. My impression back then (many years ago) was the same as yours: lawyers, accountants, financial engineers, bankers, and “fiduciaries” living off other people’s money, and off their need to keep it out of sight from other jurisdictions.

      However, I could speak with every Luxembourger in French, German, and English – it made no difference. They all study abroad as part of their deal.

      As far as swimming is concerned, decades ago I became allergic to chlorinated water, so I’m strictly an open-water swimmer – and since I live in San Francisco, a cold-water swimmer. The Bay (and my swim club) is just a few blocks down the hill :-)

  5. Justme says:

    It is not just a coincidence that the EU President, Jean-Claude Junker, is from Luxembourg. Most likely, big banking interest and the top 0.1% backed him.

  6. Realist says:

    Where are the big US players to do their laundry that is too dirty even under lax US regulations if the City of London looses its current status after a brexit ? It was no coincidence that London had a central role in the first stage of the crisis back in 2007/2008 ….

  7. unit472 says:

    I have little doubt the Eurocrats will kill their ‘Golden Goose’ with a Tobin Tax or some variant thereof. Its their nature to want to take any pile of money they can and with London out of reach they will not allow an alternative to spring up that they cannot extort money from.

    • d says:

      Silly boy, the crony of crony’s and tax evaders best friend J C junker is the EU president, formally the president of Luxembourg.

      It is not coincidental junker helped engineer Brexit, knowing the London work, that was really lucrative, would go to Lux, not Paris or Frankfurt.

      Lux is like many of the Bahamanian states, to expensive for anybody but the wealthy, or their accommodation provided slaves, to live in.

      They have quietly made it that way on purpose.

      There will be no revolution in these places, as nobody lives there, who would want to revolt against anything, but wealth taxes.

      Singapore is quietly going that way. We have many immigrants from Singapore here, who had to leave Singh, as they could not afford to live there, and have children.

  8. D Scot says:

    Good news for The City as it confirms they are not losing the jobs. Just another few nameplates going up in Luxembourg.
    London has the best pool of employees for finance in Europe, so Frankfurt and Dublin have really no chance of taking the jobs.
    Who cares if you lose the zero% tax payers, as long as you keep the jobs

  9. Maximus Minimus says:

    How can a small municipality like Luxembourg hope to keep this scam industry going right in the centre of the continent beyond the mandate of Jean-Claude Juncker? With mainstream media-for-hire in decline and alt-fake media on the rise, this is bound to be an irritation the masters in Brussels cannot ignore.

    • d says:

      “this is bound to be an irritation the masters in Brussels cannot ignore.”

      Try this is an irritation the masters in Brussels will live with, as they can not afford to tangle with it.

      These are the people, who can, have in the past, and will again, shut down entire industries, in countries that Piss them off.

      The masters in Brussels, can not risk that sort of unemployment creating confrontation.

      Take Blackstone, its shareholdings are measured as a % of global stock’s, not national, GLOBAL. They publish data.

      Many of the entity’s in question, are private and discrete, they publish nothing as they don’t currently have to.

      Cameron made an OOPhs. Unless England gets its way on Immigration and trade, everybody in Europe, is going to be seriously hurt, by that ooph’s.

      Madame May has that nasty English attitude older English women develop.

      You are F ing with me claude, fine. I will make shure it costs you, more than it costs me, unless I get what I want.

      This is going to be the moist Acrimonious divorce of all time to date, unless the EU backs down.

      Scotland Norther Ireland and even wales are all talking independence.

      Best they remember, the reason they all entered the Union with England, was they were Bankrupt, heavily indebted, and needed England’s money to survive.

      Scotland and Northern Ireland still do, So probably does Wales.

      Sturgeon can possibly win an independence referendum.

      Then lets see Scotland survive, without money from England, and without the wright for Scots to work in England.

      • paul says:

        We deeply regret being such a burden and look forward to relieving you of it as soon as is possible.
        Think positive!

  10. mean chicken says:

    Hopefully they’re all corralled into a single country and isolated from the remainder of society.

  11. R Davis says:

    Is that what the BREXIT is in aid of .. a deliberate ploy / a double pronged approach ..
    1. To steer business to the “WASHED UP” European Union
    2. To present any notion of EXIT from the EU as sheer suicide
    Everyone of the 28 member nations is ready to bail out of the EU ..
    no one wants the EU connection any more .. it has failed.

    Big Question Here:
    So who is trying to hold the EU together .. because it’s certainly not the 28 member nations themselves.
    What vested interests are desperately trying to hold on the the EU & keep it intact.

    p.s. Jean-Claude Junkbond is one step from lunacy & also the backbone of Mutti Merkel.

Comments are closed.