Inside the storage city where treasure is buried deep

Fine wine, cigars, paintings ... the Luxembourg Freeport has it all under lock and key – and away from prying eyes. But a band of artists see a new style of tax haven

James Moore
Friday 19 September 2014 23:40 BST
Rich store of controversy: the freeport is detested by the Richtung22 collective for keeping art behind closed doors
Rich store of controversy: the freeport is detested by the Richtung22 collective for keeping art behind closed doors

It’s the sort of mismatch that might have David saying “this Goliath is a pushover compared with what you people are facing”.

In the blue corner is the Government of Luxembourg, its Grand Duke Henri, the Swiss businessman Yves Bouvier, and a legion of his ultra-high net worth clients.

In the red corner is Richtung22, a small arts collective, whose youthful and idealistic members have put themselves in the vanguard of an emerging front in the battle against tax avoidance.

Earlier this week around 500 people, including the Grand Duke, gathered to celebrate the official opening Mr Bouvier’s Luxembourg Freeport, a no-expense-spared creation sitting next to the cargo centre at the country’s Findel airport.

Occupying an 11,000 square metre site, with state-of the-art facilities for storing fine wines, cars, cigars and of course art, as well as other luxury items, it is the second storage centre opened by Mr Bouvier, who also owns the Singapore Freeport.

Together they could become part of a chain and similar operations are springing up all over the world. Beijing, for example, is preparing to join the club.

Originally known as bonded areas, freeports have a long history and were originally used to store commodities and manufactured goods, although more recently they have garnered an unwelcome reputation for smuggling and other illicit activity. Shell has called for their closure in the Philippines, with oil smuggling at facilities in the archipelago reckoned to have cost the Government hundreds of millions of dollars in revenue. And in 2003 authorities in Switzerland, home to several of the centres, announced they would return hundreds of antiquities stolen from sites in Egypt and subsequently stored there.

The new breed of freeports, however, have moved decisively upmarket. The one in Luxembourg is at pains to stress its legitimacy, and says it welcomes queries from journalists. David Arendt, managing director, says: “The legislative framework under which the Luxembourg Freeport operates guarantees total traceability of all goods stored and ensures that all activities strictly comply with international standards. The supervisory and enforcing authority is the Luxembourg customs authority, which has to vet all operators of the Freeport, who in turn have to declare in detail all incoming goods and outgoing goods.

“Goods and services in the Luxembourg Freeport benefit from a regime of suspension of VAT and customs duties which is completely compatible with EU legislation. VAT is collected and payable by the owner who removes the goods from the freeport. There are hundreds of freeports and thousands of bonded warehouses in the EU operating under this regime.”

To the criticism of art being hidden behind closed doors, he says: “The Luxembourg Freeport has eight showrooms and a spectacular lobby designed to display the goods in storage. Also, temporary importations into the EU, while works of art remain under the suspension regime, are possible for participation of those works in museum exhibitions, fairs or gallery shows.”

But Richtung22 is unconvinced. As are others who say that not only are the owners of art and other treasures hoping to tap into the investment potential of the storage centres (The Economist magazine’s valuables index has beaten stocks over the last decade) but also from their ability to avoid tax and scrutiny. Freeports can offer confidentiality, with, for example, the possessors of the treasures storing goods owned through nominee accounts.

That’s handy at a time when, for example, cash (and other investments) held in offshore financial centres is increasingly being drawn into the authorities’ spotlight thanks to the fall of banking secrecy laws in places like Luxembourg and Switzerland.

The Luxembourg facility opened in the same week that the OECD unveiled proposals to tackle multinational corporate tax avoidance.

Critics argue that the growth freeports represent a new battleground in the fight against tax avoidance by individuals.

Richtung22 aims to put on a play and a film each year. Its latest production, at the Théâtre du Centaure in Luxembourg City, is a satirical jab at the freeport.

The collective detests the notion of what it describes as “art behind closed doors”. It is also sharply critical of the role of the duchy’s Government in the freeport’s creation, and its arguments have gained traction in the local media.

Anne Klein from the collective says: “The freeport is very revealing of the new strategy of the Luxembourg financial centre. In the past, Luxembourg’s banks have focused on attracting middle-class people and small businessmen from neighbouring countries, attracted by our bank secrecy laws. As these laws needed to be abolished under EU pressure, our Government wants to attract ‘high net worth individuals’ by creating a very favourable environment for investment funds and now establishing the freeport.

“In a time of increasing wealth inequality, we think it is inappropriate for our Government to provide these facilities to the world’s richest citizens. (And perhaps maybe even to criminals – OECD economists have already expressed concern that the freeport will be used for money laundering.)

“It is especially ironic that while transactions within the freeport will be exempted from VAT, the Government is planning at the same time a VAT raise for the general public.”

The artists’ reproach has seen government ministers confronted on television about the issue.

Ms Klein continues: “As artists, we are appalled to see art being transformed into a mere item of speculation. Locked away in the freeport, art loses its purpose.”

John Christensen, executive director of the Tax Justice Network, agrees: “Yet again a tax haven surprises me by the speed at which it moves. Art is the latest asset class where money is flowing in, mainly driven by tax advantages. This is going to wreck the market, and harm the arts generally. Tragically much of this stuff will disappear into vaults and will never be seen.”

He adds: “It’s conspicuous consumption at its worst, the rich showing off to the rich, and it’s socially obnoxious.”

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