* New transparency regime would begin from Jan. 1, 2015
* Move follows pressure from Germany and French scandal (Adds comment from Schaeuble, paragraph)
By Michele Sinner
LUXEMBOURG, April 10 (Reuters) - Luxembourg plans to lift bank secrecy rules for European Union citizens who have savings based in the country, the prime minister announced on Wednesday, marking a sharp shift in policy that will take effect from 2015.
The move would bring Luxembourg into line with all other EU countries bar Austria in sharing information within the European Union about bank depositors in its territory. The decision adds to pressure on Vienna to fall into line, after Austria's chancellor said on Tuesday it would join talks on the subject.
Luxembourg's decision follows lobbying by Germany and the European Commission, bolstered by the case of former French budget minister Jerome Cahuzac, who is under investigation for fraud after admitting lying about having a Swiss bank account.
"We can, without great damage, introduce automatic exchange of information as of January 1, 2015," Prime Minister Jean-Claude Juncker told parliament in a state-of-the-nation address.
"We are following a global movement ... we are not caving in to German pressure," he said, adding that 25 EU countries as well as the United States wanted such data-sharing.
Germany said on Tuesday that the EU's five largest economies - Germany, France, Britain, Italy and Spain - had agreed to deepen cooperation on tackling tax evasion.
Juncker's announcement ends decades of bank secrecy in Luxembourg, which helped the country establish what is now one of the biggest financial centres in Europe and to make its citizens the region's wealthiest in terms of per-capita income.
Luxembourg, with a banking industry roughly 22 times the size of its economy and with deposits 10 times its GDP, has come under heavy pressure to change in recent weeks.
The losses imposed on uninsured deposit holders in the bailout of Cyprus underscored the weak bargaining position of smaller EU states should they run into difficulty. Cyprus's financial sector, swollen with foreign funds lured by low taxes and light regulation, also dwarfed the island's economy.
Germany's Finance Minister Wolfgang Schaeuble welcomed Luxembourg's move.
"This is truly no small step for Luxembourg and it deserves our respect," Schaeuble told the Sueddeutsche Zeitung daily, according to excerpts of Thursday's edition.
"We will not wait until every last Caribbean island has changed its behavior but with a broad international approach we will be successful."
The European Commission "warmly welcomed" the announcement by Juncker and said discussions were ongoing with Austria to encourage it to fully sign up to the EU's savings directive, a piece of legislation that advocates say will help in the fight against tax evasion across the EU.
"I hope they will be able to follow the Luxembourg lead," said Emer Traynor, the Commission's spokeswoman on tax issues.
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FIGHT LIKE LION
Luxembourg is also set to sign a similar agreement with the United States, which has long been pushing for tighter controls on offshore centres such as Switzerland to stop tax evasion.
Pressure to shift increased after a report by the Washington-based International Consortium of Investigative Journalists detailed how banks have worked to help wealthy clients use tax havens such as the British Virgin Islands.
"We cannot deny to the Europeans all that we will have to concede to the Americans in a bilateral treaty," said Juncker.
Once Luxembourg adopts the legislation, it would mean the automatic exchange of data about EU citizens holding bank accounts in Luxembourg, with the aim of cracking down on tax avoidance in particular on interest income from savings.
It will not apply to foreign companies based in the country, which is a popular headquarters for major corporations. Juncker said Luxembourg would not increase corporation tax.
Most developed countries share information on taxpayers and depositors "on demand". But since this requires the authorities in the requesting jurisdiction to suspect wrongdoing, it only has limited impact in uncovering unlawful behaviour.
Automatic exchange of information allows tax authorities to more easily spot tax evasion or illicit money flows.
Juncker played down the impact of the change in rules, which Luxembourg has been resisting for roughly seven years since the EU Savings Directive was launched.
"The finance sector in Luxembourg doesn't existentially depend on banking secrecy," he said. "The government is not switching off the lights in the finance sector."
Luxembourg's announcement leaves Austria as the only country not fully signed up to savings directive rules. Its finance minister said this week she would "fight like a lion" to defend the country's banking secrecy regime.
But Chancellor Werder Faymann signalled an easing of Vienna's hardline stance, saying on Tuesday that Austria would join Luxembourg for talks with the EU on how to crack down on cross-border tax cheats.
The European Commission warned Austria on Monday that its banking secrecy would put it in a "lonely and unsustainable position" if it did not adopt the same rules as other countries in sharing data on foreign depositors.
(Additional reporting by Gareth Jones in Berlin; Writing by John O'Donnell; Editing by Catherine Evans and Susan Fenton)
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