Staying strong while “under siege”

In a recent Financial Times article entitled “Under Siege”, Vanessa Houlder shines a spotlight on the current state of affairs in Luxembourg’s financial sector. At the top of the page, a picture appears of a walled castle. It is an unmistakable metaphor for Luxembourg, a country whose advantageous tax regime is under increasing scrutiny by foreign authorities and Europe alike, their coffers empty after the financial crisis.

At first glance, it would appear that there is nothing positive to say. The article goes on to detail many of the regulatory changes that are set to occur in the near future, including the rising VAT rate, especially for ecommerce, and the OECD’s action plan on base erosion and profit shifting (BEPS) which seeks to close tax loopholes such as hybrid loans and low-tax branches. Rulings, the official confirmation of how intra-company deals are taxed in Luxembourg are especially being put under the microscope.

However, the gaps between the reality of tax planning in Luxembourg and how it is viewed by the uninitiated are quite large. I was quoted in the article as saying, “The truth on the ground is far more boring than people make out.” Indeed, Luxembourg tax rulings are not the informal and secretive backdoor deals many people imagine, but rather an administrative procedure relying on rigorous technical analysis and documentation.

We also cannot forget factors other than regulation that draw companies of all sizes to Luxembourg. Far from being an isolated island nation, Luxembourg is situated at the crossroads of Europe. Over 11 million people live in Luxembourg and its surrounding region, which counts an active workforce of more than 5 million people. Luxembourg remains a politically and economically stable country with a rating of ‘AAA’ by S & P, Fitch and Moody alike.

An open economy, Luxembourg has recently moved up three places in the Global Innovation index (currently 9th place), a measure of the capacity for innovation for a country through the quality of infrastructure, institutions, workforce, markets, etc. All these aspects, coupled with a pragmatic approach to taxation make Luxembourg a uniquely attractive place to do business.

In matters of tax policy, Luxembourg’s careful budgetary planning over the years has created a virtuous circle, whereby future stability is ensured. I am often struck by political debate in Luxembourg about the budget. Luxembourgers of all political stripes are genuinely concerned when the country occasionally runs a deficit. National debt, albeit at very modest levels by international standards (sub 25% of GDP) is seen as almost shameful, a temporary measure to be repaid- not a can to be kicked down the road for future generations. This fiscal discipline allows successive governments to create and maintain business-friendly tax policies. The castle in the picture could thus be taken to symbolize stability and predictability.

Luxembourg tax policy sits in a global environment and international businesses and individuals have to plan in this environment. Tax planning in Luxembourg, Europe and beyond is growing in complexity due to new rules and regulations. This reality only increases the need for solid and practical advice. We work together with our clients to set reasonable tax objectives that meet clients’ needs and goals and are sustainable in the “new normal” of international tax. We can be certain of two things at ATOZ: the quality of services we provide and the innovative solutions that we offer. Like the castle in the picture, tax planning must be robust, and built to last. This is precisely the type of service we are committed to offering our clients now, and in the future.

Keith O’Donnell

Back

Comments

Why aren't the Luxembourgish authorities (and companies based in Lux) working harder at promoting "the other side of the story" as to why companies and wealthy individuals choosing Luxembourg as the place where they "keep" their money in? It's true that the products are not for the common people but they are the ones who are putting pressure on their politicians to make Luxembourg introduce regulation in areas in which maybe they shouldn't. Also, since Luxembourg doesn't have that much political power because of its size and number of seats in the Parliament isn't the country under the threat of "undue political influence"?
Keith O'Donnell's picture

Historically, the Luxembourg approach in promotion, partly born of the Luxembourgish culture, tended to be discreet and modest. This is now changing with a more professional approach to promoting the financial market place (LFF for example) and the country (see recent government pronouncements). The Luxembourg financial market place does serve the savings of a vast number of individuals and companies. In the case of individuals, not just wealthy ones I should point out, as the investment fund industry serves vast numbers of small savers in Europe and around the world. On undue political influence, we shouldn't underestimate the rights a small country in the EU has. While the number of seats in parliament may look small, ultimately, Luxembourg, like all member states has an effective veto on certain matters, notably tax policy. Luxembourg also has a tradition of punching above its weight in European politics, due to its uniquely European character.

I will definitely do some reading on some of the things you pointed out (country tax policy veto power, LFF etc.). I am also happy to hear that Luxembourg is taking steps in promoting its services to the world and making people aware of "the other side of the story".

Add new comment

2 + 0 =