Why Luxembourg is a tax haven ?
Luxembourg has been a tax haven of choice for corporations and the wealthy since the 1960s, when the small European country rose as a financial center for the off-shore trade of European bonds. Luxembourg was popular with companies looking to issue debt because it lacked a withholding tax, did not require a stamp duty, and did not require bond issuers to publish a prospectus.
I. About Luxembourg City
Hundreds of Amazonians enjoy working in Luxembourg. Quality of life, the location within Europe, a diverse, expat-friendly culture and children’s international education are just some of the reasons why skilled and innovative colleagues first decided to join us here. Meet Rachel, Ana, Gil, Jake and Olga Amazonians who call Luxembourg home.
Bordered on all sides by its much larger neighbors – Belgium, France and Germany – Luxembourg is the world's only remaining sovereign Grand Duchy. The official language is Luxembourgish but French and German are administrative languages. Unsurprisingly, English is widely understood. Foreign residents account for 48% of the total population. Although small, the country has a highly developed economy with the highest GDP per capita in the world. Luxembourg offers high quality healthcare, education and pension system and the Duchy’s financial support for parents.
Luxembourg’s small size means Amazonians can live in, or close to, the city center. Others prefer living in the countryside that accounts for over a third of the territory and at a short distance from our offices. Some employees prefer to commute daily to Luxembourg from the neighboring countries under the Schengen free-movement agreement and their commuting times by car are better than within many capital cities. The network of buses, trains and a tram service will become free to use . making Luxembourg the first country to offer free public transport for its residents.
II. How Banking Business Works in Luxembourg ?
Though Luxembourg has a population of around 630,000, it attracts as much foreign direct investment (FDI) as the United States. Its $4 trillion in FDI comes out to $6.6 million per person. The International Monetary Fund describes these inflows and outflows as "phantom investment." Much of the money flows into empty corporate shells for the purpose of minimizing the taxes of the entities that control the shells.4
A favorable tax regime encourages corporations to establish special purpose entities in Luxembourg. One benefit is the lack of withholding taxes on interest payments and royalty payments, which may allow these payments to escape taxation in the jurisdiction in which these receipts were generated.
Economists estimate that 80% of profits shifted from EU countries wind up in tax havens located in the EU, namely Luxembourg, Ireland and the Netherlands. Luxembourg accounted for $47 billion in shifted profit in 2015. Ireland accounted for $106 billion and the Netherlands accounted for $57 billion in the same year.6
Favorable Tax Deals
The top rate for companies operating in Luxembourg is 24.94%. This consists of a 17% corporate tax rate, a municipal business tax of 6.75% and a 1.19% contribution to an employment fund.
However, documents obtained by the International Consortium of Investigative Journalists revealed hundreds of multinational corporations had entered into tax agreements with Luxembourg that allowed them to pay an effective tax rate less than 1%. The documents, known as the Luxembourg Leaks, showed that FedEx Corp established two affiliates in Luxembourg for the purpose of transferring earnings from its operations in Mexico, France and Brazil to the company's affiliates in Hong Kong. Luxembourg agreed to tax the income at a rate of 0.25%, leaving 99.75% of the transfers tax-free.
OpenLux : the secrets of Luxembourg, a tax haven at the heart of Europe - an investigation by Le Monde , France.
ENQUÊTE : Multinationals, billionaires, artists, sportsmen, criminals : an investigation by Le Monde reveals for the first time exhaustively what the Grand Duchy’s financial centre conceals, thanks to its tax advantages.
It is a well-kept secret, a persistent mystery, a question that has been unresolved for years : what is the financial centre in Luxembourg hiding ? What would we find if we opened the safe of this tiny State located in the heart of the European Union, listed by many researchers in the world’s top 5 tax havens ? The OpenLux investigation, conducted by Le Monde along with ten media partners for more than a year, provides answers : 55,000 offshore companies managing assets worth at least 6 trillion euros.
These phantom companies without offices or employees were created by billionaires, multinationals, sportsmen, artists, high-ranking politicians and even royal families. Luxembourg acts as a magnet for the wealth of the world : in a territory of 2,586 km2, Tiger Woods and Cristiano Ronaldo rub shoulders with Shakira and the King of Bahrain. Hundreds of multinationals (LVMH, Kering, Altice, Pfizer, Amazon…) have opened financial subsidiaries. Wealthy families increase their real estate assets there.
More surprisingly, OpenLux reveals that questionable funds, suspected of originating in criminal activity or linked to criminals targeted by judicial investigations, have been concealed in Luxembourg. This is the case of companies linked to the Italian Mafia, the’Ndrangheta, and the Russian underworld. The League, Italy’s far-right party, has hidden a secret fund which is sought by the Italian authorities. People close to the Venezuelan regime have recycled corrupt government procurement funds.
To conduct this investigation, Le Monde has compiled a huge database that lists the beneficiaries of the 124.000 commercial companies registered in Luxembourg, i.e. their true owners, along with 3.3 million administrative acts and financial reports. These are documents that have recently been made public, but are only available on the Luxembourg trade register website. Le Monde was able to extract them in their entirety for analysis, in partnership with the Suddeutsche Zeitung in Germany, Le Soir in Belgium, McClatchy in the United States, Woxx in Luxembourg, IrpiMedia in Italy, and the OCCRP Consortium of investigative journalists.
Pic : Deutsche Bank is one of 141 banks in the tiny country
III. 157 nationalities represented
These investigations confirm that the Grand Duchy is, contrary to what the Luxembourg authorities claim, a veritable offshore centre, halfway between the City of London and the British Virgin Islands. Nearly 90 % of its « companies » are controlled by non-Luxembourgers. Among the 157 nationalities represented in this amazing « Who’s who », the French stand out : they head the list with, in total, more than 17.000 companies.
What they house is surprising : valuable property, here a castle near Paris owned by a Saudi prince, there a vineyard in Provence owned by Angelina Jolie and Brad Pitt, and an endless list of villas on the French Riviera and well-appointed Parisian apartments. But also flagships of the French economy, such as Yves Rocher, Chanel, JCDecaux and Decathlon. It’s almost as if Luxembourg owned small pieces of France.
The case of France is not isolated : it is also through Luxembourg companies that some investment funds buy whole swathes of cities such as Berlin and London, causing real estate prices to rocket without being identifiable or paying taxes. The list of international assets held in Luxembourg is a gigantic inventory, including luxurious residences, chalets, yachts, helicopters, private jets and big planes, music catalogues, the rights to images, works of art, in short, the list is endless.
In total, as confirmed by the list of 64,458 beneficiaries identified by OpenLux : the Grand Duchy of Luxembourg concentrates a large part of the world’s wealth. It is home to at least 279 of the more than 2,000 billionaires listed by Forbes magazine. But also 37 of the 50 wealthiest French families, such as the Mulliez, Guerrand-Hermès and Bernard Arnault, who structure their group, their assets and their investments through dozens of Luxembourg holding companies.
Pic : Luc Frieden - finance minister in tax paradise?
Finance Minister Luc Frieden also does not want to shake things up by threatening the sense of security felt among companies and investors there.
In another Development , the youth wing of center-right Democratic Party in Luxembourg issued a statement demanding that bank secrecy be maintained.
IV. A prime location for tax planning
There are various reasons for choosing Luxembourg : a central position in the European Union, high-quality financial engineering, financial regulations tailored to business, direct access to the country’s institutions, and political stability. But let there be no mistake : the first reasons are taxation and discretion. They are the result of political choices dating back to the time of former Prime Minister, Jean-Claude Juncker (1995-2013), who later became President of the European Commission.
Luxembourg has certainly turned its back on its former tax rescripts, these ultra- advantageous arrangements granted to large multinationals, following the revelations on the subject in 2014 by the « LuxLeaks » investigation. But it remains a hotbed of tax planning for companies and wealthy individuals through preferential tax regimes. This encourages, in some cases, abuse and, possibly, fraud.
The scale of the financial centre is such that the Grand Duchy seems, moreover, insufficiently equipped to guarantee effective control over all the flows it handles. Its services seem to be more calibrated to the size of the country than to its offshore activity. The trade register has only 59 employees to enforce the legal obligation to declare the actual beneficiaries of more than 100.000 entities and to carry out an initial control of the declarations. The Financial Sector Supervisory Commission (CSSF) has only 900 employees, even though the financial sector accounts for a quarter of the country’s economy.
V. Luxembourg defends itself against new tax haven allegations - ABC News
Luxembourg is denying claims made in international media publications that the nation is a massive tax haven for the world’s rich and famous despite European Union legislation to clamp down on it
LUXEMBOURG -- Luxembourg on Monday denied claims made in international media publications that the nation is a massive tax haven for the world's rich and famous despite European Union legislation to clamp down on it.
A group of media outlets including France's Le Monde allege that the Grand Duchy has scores of ghost companies without staff or offices with only the aim in mind to hide or protect funds and wealth from tax collectors or harbor suspect funds. The outlets cite financial data they collated based on publicly available registers of companies.
The Luxembourg government said in a statement Monday it “rejects the claims made in these articles as well as the entirely unjustified portrayal of the country and its economy."
It said that as an international financial center, “Luxembourg continuously assesses and updates its supervisory architecture and arsenal of measures to combat money laundering and terrorist financing."
The Transparency International group said the so-called OpenLux investigation by Le Monde and others showed “major weaknesses in anti-money laundering frameworks in Luxembourg," where investment funds “largely operate in secrecy."
The government countered that “Luxembourg is fully in line and compliant with all EU and international regulations and transparency standards, and applies, without exception, the full arsenal of EU and international measures to exchange information in tax matters and combat tax abuse and tax avoidance."
European lawmaker Sven Giegold of the Greens/EFA group said the efforts of Luxembourg had not gone far enough.
“Luxembourg acts as a go-between for European countries and tax havens around the world. Societies will continue to lose out on billions of euros in tax revenue so long as other countries act as tax havens without hindrance and tax transparency rules are not implemented across the EU," Giegold said.
VI. Luxembourg becomes first country to provide free public transport
Luxembourg will become the first country in the world to offer a free public transport system as the government tries to reduce particularly dense car traffic.
Some cities have already taken similar partial measures but the transport ministry said it was the first time such a decision would cover an entire country.
The free transport, which is being flagged as "an important social measure", will affect approximately 40 percent of households and is likely to save each one around 100 euros (US$110) per year.
The measure is part of a plan intended to reduce congestion.
Private cars are the most used means of transport in the Grand Duchy. According to a 2018 survey by TNS Ilres, cars accounted for 47 percent of business travel and 71 percent of leisure transport.
The bus is only used for 32 percent of trips to work ahead of the train which accounts for just 19 percent.
In Paris, by way of contrast, 68.6 percent of workers use public transport, according to Insee, the French statistics institute.
The capital city of Luxembourg, where a tram has been under construction for some years, is notoriously bad for traffic jams.
The first section of the tram has been operational since the end of 2017 but work will continue for a few more years to link the southern outskirts of the capital to the north where the airport is located.
"Systematic and continuous investment is a sine qua non (essential) condition for promoting the attractiveness of public transport," said transport minister Francois Bausch.
Sales from the existing 2 euro tickets amount to 41 million euros a year which, according to the authorities, represented just eight percent of the annual budget of 500 million euros. This will now be met by the treasury.
The exception to the free-for-all rule will be first-class travel on trains and certain night bus services.
VII. Luxembourg Videos
1. 15 Things You Didn't Know About Luxembourg
2. How Rich Is Luxembourg?
3. THINGS TO DO IN LUXEMBOURG | THE SMALLEST AND RICHEST COUNTRY IN THE WORLD
https://www.youtube.com/watch?v=GoX_HYhRUPg
Conclusion
Luxembourg is one of the most notable tax havens around the world. More than 340 companies around the world have set up subsidiaries in the country and sought beneficial arrangements for the purpose of seeking tax relief. Companies named in the Luxembourg Leaks include Amazon, Apple, AIG, FedEx, Fidelity, Heinz, IKEA, Office Depot, Pepsi Bottling Group and Staples.
Switzerland is a well-known hideaway for assets from around the world, but the country does not belong to the European Union. Within the EU, Luxembourg is the largest tax haven - and operates fully within the law.
MM Rao
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Sources :
https://www.dw.com/en/luxembourg-the-eus-top-tax-haven/a-16729339
https://www.lemonde.fr/les-decodeurs/article/2021/02/08/openlux-the-secrets-of-luxembourg-a-tax-haven-at-the-heart-of-europe
https://www.google.com/search?q=luxembourg&sxsrf=ALeKk01jSTe6KeajiSd_xyb99pNaymeR9Q:1622034206567&source
https://abcnews.go.com/International/wireStory/luxembourg-defends-tax-haven-allegations-75751253
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