Luxembourg, one of the EU's smallest but richest countries, has said No to a new law against tax evasion.

Its finance minister, Luc Frieden, told press in Brussels on Monday (13 May): "We won't agree tomorrow to the savings tax directive with an extended use because there's still some need for clarification."

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He added: "At the moment we lack precision about a number of questions that need answers … We don't know how this will be written into European law and we're not sure that all the loopholes have been closed, in particular a number of trusts don't seem to be covered."

The European Commission has been trying to update its anti-tax-fraud legislation for the past eight years.

Its 2005 law forces member states to automatically exchange information on EU nationals' deposits in other European Union countries.

But it contains gaps on income received via investment funds, pensions, trusts and foundations.

It also contains a big hole on Austria and Luxembourg.

The two financial centres are exempt from automatic exchange until such time as five non-EU tax havens - Andorra, Liechtenstein, Monaco, San Marino and Switzerland - agree to it as well.

Luxembourg's reluctance to go ahead puts it on a collision course with major EU states, including France, Germany and the UK.

Their finance ministers will bash heads with Frieden at a meeting in Brussels on Tuesday.

EU leaders will also tackle the subject at a summit on 22 May.

"It is a test of our seriousness and the world is watching us," British finance chief George Osborne said in a letter to his EU counterparts ahead of Tuesday's talks, the Financial Times reports.

"If agreement on automatic data exchange is not reached at Ecofin [the EU finance ministers' meeting] on 14 May, it will be achieved a week later at the meeting of heads of government," Austrian Chancellor Werner Faymann told the Kronen Zeitung newspaper on Sunday.

Frieden's statement also appears to clash with Luxembourg's earlier commitment to end bank secrecy by 2015.

But he did agree to let the commission launch talks with the group-of-five non-EU tax havens on farming out the automatic data exchange rule.

"We can agree to the [negotiating] mandate now, and we couldn't in the past, because the mandate has been changed," he said, noting that the new text includes an EU commitment to push for tax transparency among the G20 group of leading world economies.

The commission estimates that crisis-hit EU treasuries could harvest up to €1 trillion in extra tax income if the new law is put in place.

Luxembourg, home to just half a million people, has a GDP per capita which is almost three times the size of the EU average.

Its wealth comes mainly from financial services.

Its banking sector is worth 22 times the size of its economy.