Archaeology of a Treasure Island: Actors and Practices of Holding Companies in Luxembourg (1929–1940)

[en] Tax avoidance has become a hotly discussed topic. These debates have been informed by academic research done by social scientists. Historians, relative latecomers in the field, argue for a greater consideration of the interwar period so as to understand the pathway dependencies of the infrastructures used for tax dodging practices today. This article explores the question of how Luxembourg became, in the 1930s, an important node in the network of legal re-coding of capital for tax shopping purposes. The Holding Act of 1929 offered legal security but was vague enough to foster a fiscal bricolage that allowed notaries, banks and lawyers to serve a heterogeneous group of people eager to pay less tax. Concealing the real beneficiaries of the holding while at the same publicising the opportunities of the legal coding proved to be a complementary process.

Disciplines :

History

Author, co-author :

CALABRESE, Matteo ; University of Luxembourg > Luxembourg Centre for Contemporary and Digital History (C2DH) > Contemporary European History

MAJERUS, Benoît ; University of Luxembourg > Luxembourg Centre for Contemporary and Digital History (C2DH) > Contemporary European History

External co-authors :

Language :

English

Title :

Archaeology of a Treasure Island: Actors and Practices of Holding Companies in Luxembourg (1929–1940)

Publication date :

2023

Journal title :

Contemporary European History

ISSN :

0960-7773

Publisher :

Cambridge University Press, United Kingdom

Pages :

1--18

Peer reviewed :

Peer Reviewed verified by ORBi

Focus Area :

Finance

Additional URL :

https://www.cambridge.org/core/journals/contemporary-european-history/article/archaeology-of-a-treasure-island-actors-and-practices-of-holding-companies-in-luxembourg-19291940/C425D2D9D2569A1C2A869148FA428932

FnR Project :

FNR15850642 - Making Shell Companies Visible. Digital History As A Tool To Unveil Global Networks And Local Infrastructures, 2021 (01/03/2022-28/02/2025) - Benoit Majerus

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since 24 August 2023

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Bibliography

1 Archives Nationales du Luxembourg (ANL), Ministère des Finances (FIN), box 19445, statement by Franscisco Sans y Esparaza (undated, between 1946 and 1948). This disclosure, which reveals the true beneficiary of the holding company Sogeparfi SA, established in Mar. 1938, became necessary after the Second World War, when assets held by Germans were sequestered: holding companies were obliged to show a certain transparency if they wanted their assets to be released.
2 Ronen Palan, Richard Murphy and Christian Chavagneux, Tax Havens: How Globalization Really Works (Ithaca, NY: Cornell University Press, 2010), 3.
3 See e.g. James Hollis and Christopher D. McKenna, ‘The Emergence of the Offshore Economy, 1914–1939’, in Kenneth Lipartito and Lisa Jacobson, eds., Capitalism’s Hidden Worlds (Philadelphia: University of Pennsylvania Press, 2020), 157–77.
4 Serge Paquier, ‘Swiss Holding Companies from the Mid-Nineteenth Century to the Early 1930s: The Forerunners and Subsequent Waves of Creations’, Financial History Review, 8, 2 (2001), 163–82.
5 André Piatier, a contemporary commentator and Professor of Law in Paris, described this process as a ‘refined form of fraud’ (André Piatier, L’évasion fiscale et l’assistance administrative entre états (Paris: Recueil Sirey, 1938), 120).
6 Christophe Farquet, La défense du paradis fiscal suisse avant la Seconde Guerre mondiale: une histoire internationale (Neuchâtel: Editions Alphil, 2016). Thibaud Giddey, Histoire de la régulation des banques en Suisse (1914–1972) (Genève: Droz, 2019).
7 Christophe Farquet, ‘Le marché de l’évasion fiscale dans l’entre-deux-guerres’, L’Économie politique, 54, 2 (2012), 95–112; Hanspeter Lussy and Rodriguez López, Finanzbeziehungen Liechtensteins zur Zeit des Nationalsozialismus, Vaduz: Historischer Verein für das Fürstentum Liechtenstein (Zürich: Chronos, 2005), 96–7.
8 Felipe De Sola Canizares, ‘Les sociétés financières en droit comparé’, Revue internationale de droit comparé, 7, 3 (1955), 600–14.
9 See also W. Vlcek, Offshore Finance and Small States: Sovereignty, Size and Money (Basingstoke: Palgrave Macmillan, 2008).
10 Samuel Weeks, ‘Channeling the Capital of Others: How Luxembourg Came to Be Asset Managers’ “Plumber” of Choice’, Environment and Planning A: Economy and Space (14 Feb. 2023), 1–18.
11 Émile Haag, The Rise of Luxembourg. From Independence to Success (Luxembourg: Saint-Paul, 2015), 229.
12 Michel Pauly, Histoire du Luxembourg (Brussels: PUB, 2013), 132. For a historiographical overview: Benoît Majerus and Benjamin Zenner, ‘Too Small to Be of Interest, Too Large to Grasp? Histories of the Luxembourg Financial Centre’, European Review of History, 27, 4 (18 May 2020), 548–62.
13 Edwin Fischer, ‘L’épargne française et les sociétés de placement’, doctorat, Université de Grenoble, 1935. See also Piatier, L’évasion fiscale.
14 Farquet, La défense du paradis fiscal suisse, 235.
15 The term offshore financial centre (OFC) is in some ways anachronistic. It was coined in the late 1970s in the United States. It is used to describe a ‘country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy’, in ‘Offshore financial centre’, Wikipedia (last consulted: 3 June 2022). Using the term OFC partly avoids the use of the term tax haven, which has strong pejorative connotations and discredits certain countries (in the eyes of critics of tax avoidance) and the researchers who use this term, whose analysis is then reduced to moralising considerations (in the eyes of those who support the model). It also stresses that the interwar period was already a moment where the ‘practice of avoidance . . . became a small-scale industry rather than a craft’. Assaf Likhovski, ‘Tax Law and Public Opinion: Explaining IRC v. Duke of Westminster’, in John Tiley, ed., Studies in the History of Tax Law, vol. 2: 183–221 (London: Bloomsbury Publishing Plc, 2007), 207.
16 See also S. Guex, ‘The Emergence of the Swiss Tax Haven, 1816–1914’, Business History Review, 96, 2 (2022), 353–72.
17 Alain Vernay, Les paradis fiscaux (Paris: Éditions du Seuil, 1968); Palan, Murphy and Chavagneux, Tax Havens; Sabine Dörry, ‘The Role of Elites in the Co-Evolution of International Financial Markets and Financial Centres: The Case of Luxembourg’, Competition & Change, 20, 1 (2016), 21–36 and Samuel S. Weeks, ‘Secrecy and Consensus. The Governmentality of an Offshore Financial Center in Europe’, PhD, University of California, 2018.
18 ANL, Chambre des Députés, CR-0129, Session ordinaire de la Chambre des Députés 1928–1929 (Compte rendu des séances publiques).
19 Bernard Delvaux, Les Sociétés ‘Holding’ au Grand-Duché de Luxembourg: Etude théorique et pratique de la loi du 31 juillet 1929 (Luxembourg: Victor Bück, 1933).
20 Mixed holding companies, which also had commercial or industrial activities, were excluded by the law, unlike in Switzerland (Bernard Delvaux and Edmond Reiffers, Les Sociétés ‘Holding’ au Grand-Duché de Luxembourg: Etude théorique et pratique de la loi du 31 juillet 1929 (Luxembourg: Victor Bück, 1933).
21 ANL, Conseil d’Etat (CE), box 2467, Projet de loi sur le régime fiscal des sociétés de participations financières dites holding companies (1929–1937).
22 Ibid.
23 ANL, FIN, Administration de l’enregistrement et des domaines, box 3788, Réformes concernant les différents droits et taxes fiscales ainsi que relevés et avis y relatifs, 1907–1929.
24 ANL, FIN, Administration de l’enregistrement et des domaines, box 3788, lettre de l’ARBED et réponse de Pierre Braun. See also Charles Barthel, Bras de fer: Les maîtres de forges luxembourgeois, entre les débuts difficiles de l’UEBL et le Locarno sidérurgique des cartels internationaux, 1918–1929 (Luxembourg: Saint-Paul, 2006).
25 The new regime would combine the management advantages of a holding company with the prospect of benefiting from the reduced tax regime on capital stocks and profits granted to holding shell companies by means of favourable fiscal legislation. Following the adoption of H29, ARBED did not create a holding company listed in Luxembourg, most likely because the Great Depression of 1929 made such a corporate restructuring less urgent. ‘Les sociétés de participation financières’, L’Écho de l’Industrie, Dec. 1930, 3.
26 ANL, CE, box 2467, Projet de loi sur le régime fiscal des sociétés de participations financières dites holding companies (1929–1937).
27 ANL, CdD, CR-0129, Session ordinaire de la Chambre des Députés 1928–1929 (Compte rendu des séances publiques). 28 Delvaux and Reiffers, Les Sociétés ‘Holding’, 1933, 81.
29 Léon Metzler, ‘Aspects et évolution du droit des sociétés et des associations’, L’Écho de l’Industrie, Feb. 1930; Delvaux and Reiffers, Les Sociétés ‘Holding’, 43.
30 In this paper, we refer to a theoretical framework that considers capital as characterised by a twofold structure comprising an asset (including also intangibles, such as patents) and the legal code. Only the coexistence of these two elements is able to ensure the legal properties of priority (e.g. ranking ownership claims), durability (namely, extending priority over time), universality and convertibility that define the capital itself (see Katharina Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (Princeton: Princeton University Press, 2019)).
31 ANL, CE, box 2467, Comparison table between Luxembourg, Switzerland (Canton Glarus) and Liechtenstein, 5.
32 As well as two other initial light capital stock taxes on listing the holding in Luxembourg.
33 ANL, CE, box 2467, 6. It comes as no surprise that in its second paragraph, H29 includes a list of taxes that holding companies do not have to pay.
34 ANL, FIN, box 296, Budget de l’exercice 1937; Delvaux and Reiffers, Les Sociétés ‘Holding’.
35 Only Monaco, which also adopted a fiscally advantageous system for holding companies in 1934, managed to be competitive on paper but remained of relatively minor importance prior to the Second World War. Luc Hommel, ‘Les holdings luxembourgeoises: faut-il instaurer en Belgique un régime fiscal spécial pour les holdings?’, Journal Pratique de Droit Fiscal et Financier, 13–14 (1939), 145–81; ‘Holding-Konkurrenz für Luxemburg?’, Luxemburger Wort, July 1934. See also ANL, CE, box 2467, Proposed amendments to Holding Act by deputy M.H. Clement, Feb. 1937.
36 Archives of the Banque Nationale de Belgique (ABNB), box A244, Note: ‘Développement des holding luxembourgeoises et son incidence sur les finances publiques (7 Oct. 1952)’. See also ANL, CE, box 2467.
37 See the analysis of Luxembourg’s case in the context of capital movement in the 1930s in Piatier, L’évasion fiscale et l’assistance administrative entre États, 70 and 120
38 The demands made by the Socialist Party at the beginning of the 1930s for greater transparency – in particular a more detailed balance sheet as required by French legislation – and greater representation of Luxembourgers on boards of directors – as is the case in some Swiss cantons under the Überfremdungsbestimmungen [Foreign Infiltration Provisions] – were not implemented: Fernand Ensch, ‘Die luxemburgische Holdinggesellschaft’, inaugural dissertation, Universität Basel, Basel, 1933, 21–2. They would have seriously burdened the system and perhaps taken precedence over the tax advantages.
39 ANL, CdD, CR-0129, Session ordinaire de la Chambre des Députés 1928–1929, 16 and 17 July 1929 (Compte rendu des séances publiques).
40 See also his speech in the Chamber in July 1933: ‘Chambre des Députés’, L’indépendance luxembourgeoise, July 1933.
41 ANL, CdD, CR-0129, Session ordinaire de la Chambre des Députés 1928–1929 (Compte rendu des séances publiques).
42 Ibid. Original in French, translated by the authors.
43 ‘Asylstätten für Fluchtkapital’, Tageblatt, 25 Mar. 1938, 9.
44 Escher Tageblatt, 13 Mar. 1931, 1. Original in German, translated by the authors.
45 ‘Unter dem Schutz des Herrn Dupong’, Escher Tageblatt, 5 Oct. 1934, 1. Original in German, translated by the authors. In a similar vein: ‘Der Luxemburger Sweepstake und seine Hintermänner’, Obermoselzeitung, 25 Nov. 1933.
46 Archives Gilbert Trausch, ‘private papers of Joseph Bech’ box, minutes of a meeting between Reuter, Origer, Philippe, Reichling, Diderich, Cahen, Theves, Bodson, Fohrmann and Krier (6 Oct. 1937).
47 ‘Abgeordnetenkammer’, Obermoselzeitung, Feb. 1936, 5.
48 ANL, CE, box 2467, Proposed amendments to Holding Act by deputy M.H. Clement, Feb. 1937. Original in French, translated by the authors.
49 ‘Um Unsere Holding-Gesetzgebung’, Obermoselzeitung, Apr. 1937, 5.
50 Delvaux and Reiffers, Les Sociétés ‘Holding’, 58.
51 Ibid., 48.
52 ANL, FIN, box 19447, note from Caisse d’Épargne de l’État to Direction de l’Administration de l’Enregistrement (12 June 1946).
53 Paquier, ‘Swiss Holding Companies’, 165. During the 1930s, the value of the Swiss franc was on average seven times higher than that of the Luxembourg franc.
54 Hommel, ‘Les holdings luxembourgeoises’, 162; Statistiques historiques: 1839–1989 (Luxembourg: STATEC, 1990), 363.
55 ‘Chambre des Députés’, L’indépendance luxembourgeoise, 17 Jan. 1934.
56 Hommel, ‘Les holdings luxembourgeoises’, 163.
57 The FINLUX database contains all holding companies listed in the Mémorial du Grand-Duché de Luxembourg. Annexe, Recueil spécial des actes, procès verbaux et documents relatifs aux sociétés commerciales, publiés en conformité de la loi du 10 août 1915 between 1929 and 1939. It contains 1,486 holding companies and was curated by Matteo Calabrese, Alexander Davidov, Othmane Djebbar, Benoît Majerus, Christelle Timis and Luca Uhrig.
58 For one-fifth of the holding companies no national identification could be made.
59 For France: Nicolas Delalande and Alexis Spire, Histoire sociale de l’impôt (Paris: La Découverte, 2010), 41. For Belgium: Simon Watteyne, ‘La prédominance d’une fiscalité libérale en Belgique. Une histoire politique (1847–1962)’, PhD Thesis, Université libre de Bruxelles, 2021.
60 Guex, ‘The Emergence of the Swiss Tax Haven, 1816–1914’.
61 Farquet, La défense du paradis fiscal suisse, 199.
62 ‘Banque Internationale’, L’indépendance luxembourgeoise, May 1931.
63 Using the number of dummy directors as an indicator of which banks played the largest role in the holding market should only be indicative as banks made different use of dummy directors (see below).
64 ‘Une nouvelle banque’, L’indépendance luxembourgeoise, Aug. 1929. Other banks such as the BGL did not invest in this market in the early years. In the second half of the 1930s, however, the BGL also tried to break into the field. In 1937, it published a brochure explaining the functioning of holding companies to foreign investors.
65 ANL, FIN, box 19440, agreement (28 Aug. 1936).
66 Jules Hamelius was a Luxembourgish notary who set up about twenty holding companies in the 1930s.
67 ANL, FIN, box 19442, letter from Charles Perreau Bank to the BIL (13 May 1947). Original in French, translated by the authors.
68 Archives of the Société Générale, box 6641, letter from SGA Luxembourg to the General Direction-Financial Service of the SGA (Strasbourg) (8 Dec. 1966). Original in French, translated by the authors.
69 Nicolas Majerus, Histoire du droit dans le Grand-Duché de Luxembourg, vol. 2/2 (Luxembourg: Imprimerie Saint-Paul, 1949), 822.
70 ANL, FIN, box 19441, letter from Sylvain Pétiet to Jean Reiffers (1 Jan. 1935). Original in French, translated by the authors.
71 Delvaux and Reiffers, Les Sociétés ‘Holding’ au Grand-Duché de Luxembourg.
72 Paul Zahlen, La Luxembourgeoise. 100 Ans d’assurance Privée Au Grand-Duché (Luxembourg: La Luxembourgeoise, 2020).
73 Marcel Engel, Edmond Lorang, Emmanuel Tesch, Henri Ahlborn, Henri Loutsch and Joseph-Émile Muller, Tony Neuman: 1902–1979 (Luxembourg: Croix-Rouge luxembourgeoise, 1980), 98.
74 ‘Faillite’, Luxemburger Wort, Aug. 1936, 8; ‘Extrait’, Luxemburger Wort, Feb. 1936, 8.
75 ‘Das komplett renovierte Immöbel’, Luxemburger Wort, Feb. 1938, 12. ‘Société holding’, Luxemburger Wort, June 1937, 14.
76 ANL, FIN, box 19429, Note confidentielle remise au Commissariat luxembourgeois au Contrôle des Banques à Luxembourg (undated, signature illegible) pour Deloitte – ANL, FIN, box 19433, Lettre de Georges Altwies au Ministère des Finances (28 Nov. 1949) pour Lazard.
77 Peter Scott, ‘A Fiscal Constitutional Crisis: Tax Avoidance and Evasion in Inter-war Britain’, The English Historical Review, 137, 584 (Feb. 2022), 170–97.
78 ‘Neuerscheinung’, Obermoselzeitung, Dec. 1934.
79 ‘Luxemburgisches aus Amerika’, Obermoselzeitung, Dec. 1936, 3.
80 ‘Le holding luxembourgeois’, La Libre Belgique, Aug. 1929, 1. Original in French, translated by the authors.
81 ‘Das Land der Holdings’, Obermoselzeitung, 9 Mar. 1931.
82 ‘Les holdings à Luxembourg’, L’indépendance luxembourgeoise, 7 Nov. 1930.
83 Benoît Majerus, ‘This is not a Scandal in Luxembourg’, Entreprises et histoire, 101 (2020), 75–87; Benjamin Zenner, ‘Banco Ambrosiano: les sociétés holding et la place financière luxembourgeoise’, Entreprises et histoire, 101 (2020), 88–99.
84 On the use of holding companies pursuing surreptitious forms of separation of liabilities, see for example the interventions of socialist deputy René Blum in the debate in the Chamber on 16 and 17 July (ANL, CdD, CR-0129, Session ordinaire de la Chambre des Députés 1928–1929 (Compte rendu des séances publiques)). See also Sabine Dörry, ‘The Dark Side of Innovation in Financial Centres: Legal Designs and Territorialities of Law’, Regional Studies (2022).
85 Marie-Paule Jungblut, ‘L’étrange histoire du décrochement du franc Luxembourgeois’, in Gilbert Trausch, ed., Belgique – Luxembourg: Les Relations Belgo-Luxembourgeoises et La Banque Générale Du Luxembourg (1919–1994) (Luxembourg: Imprimerie Centrale, 1995), 139–60.
86 Mira Wilkins and Frank Ernest Hill, American Business Abroad: Ford on Six Continents (Cambridge: Cambridge University Press, 2011).
87 ‘Ford-Holding’, Obermoselzeitung, 10 Nov. 1930.
88 Nicholas Shaxson, Treasure Islands: Tax Havens and the Men Who Stole the World (Basingstoke: Palgrave Macmillan, 2016), 35–6.
89 The Henry Ford Archives, Reminiscences of Herman Moekle, 124.
90 ‘Grand Duchy of Luxembourg’, Chicago Tribune, 1933, 7.
91 ANL, FIN, box 19429, letter from the Office Suisse de Compensation (4 Feb. 1949).
92 ‘Die Holding-Gesellschaften in Luxemburg’, Obermoselzeitung, 31 Mar. 1938, 4.
93 ANL, CE, M-02467, Projet de loi sur le régime fiscal des sociétés de participations financières dites holding companies (1929–1937).
94 Ibid. Original in French, translated by the authors. The Council of State was even more explicit: ‘The definition of holding company provided by the draft text includes investment companies which seek a relatively suitable and secure return on their capital through the judicious choice of the securities forming their portfolio; it also includes . . . what are referred to as securities assumption companies’. Delvaux and Reiffers, Les Sociétés ‘Holding’, 1969. Original in French, translated by the authors.
95 See e.g. J. Rutterford, ‘Learning from One Another’s Mistakes: Investment Trusts in the UK and the US, 1868–1940’, Financial History Review, 16, 2 (2009), 157–181.
96 ANL, Minutier Central des Notaires, CN-00892 Kuborn Paul – Minutes, 1931 (Dossier).
97 https://www.nytimes.com/1994/05/28/your-money/IHT-the-saga-of-two-french-survivorsthe-philippe-family-and-its. html (last consulted: 13 Apr. 2022).
98 ANL, MCN, CN-00892 Kuborn Paul – Minutes, 1931 (Dossier).
99 ANL, FIN, box 19437, letter from the Société de Banque Suisse to Pierre Werner, commissioner for banking supervision in Luxembourg (2 Apr. 1948).
100 Ensch, ‘Die luxemburgische Holdinggesellschaft’; Hommel, ‘Les holdings luxembourgeoises’.
101 ‘Les projets de réforme fiscale’, L’Indépendance belge, July 1929, 1.
102 ABNB, box A244, Note: ‘Développement des holding luxembourgeoises et son incidence sur les finances publiques (7 Oct. 1952)’.
103 Delvaux and Reiffers, Les Sociétés ‘Holding’, 36.
104 ‘In general, the creation of these type of holding companies is not the normal consequence of a set of economic elements but an artificial construction with a purely fiscal aim’ (Ibid. Original in French, translated by the authors).
105 Haag, The Rise of Luxembourg, 229.
106 Scott, ‘A Fiscal Constitutional Crisis’.
107 ABNB, box A244, Note: ‘Développement des holding luxembourgeoises’.
108 Gilbert Trausch and Marianne de Vreese, Luxembourg et les banques: de la révolution industrielle au 7e centre financier mondial (Luxembourg: Banque Indosuez, 1995), 47.