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IMF Advises Luxembourg On Coping With International Tax Changes

by Ulrika Lomas,, Brussels

31 May 2019

The IMF has welcomed Luxembourg's efforts to meet international tax standards but cautioned that international tax reform could hit the country's tax base.

The IMF commended Luxembourg's "continued commitment to implement the European and global tax transparency and anti-tax avoidance initiatives." It observed that Luxembourg has been rated as largely compliant by the Global Forum on Tax Transparency and as fully compliant as regards the exchange of information on tax rulings under the latest OECD peer review. Luxembourg has transposed the EU's first Anti-Tax Avoidance Directive into national law and plans to transpose the second directive by the end of the year.

The IMF noted that the changing international tax environment could however pose revenue risks for Luxembourg, as reforms "are likely to alter the tax planning strategies of multinational firms, which represent a large source for inward foreign direct investment (FDI) and tax revenues." Together with the impact of US tax reforms, these changes "could reduce multinationals' incentives to locate assets in Luxembourg, eroding the country's corporate tax base."

The IMF suggested that the authorities consider measures that could mitigate these effects. It recommended that the planned generalization of income tax be implemented in a budget neutral way, to afford room for manoeuvre should downside risks materialize. Luxembourg could also adjust low property taxes, increase revenues from environmental taxes, and reduce tax exemptions, including VAT exemptions. The IMF added that plans to further reduce the corporate tax rate could widen the taxpayer base but hit revenues in the near term.

TAGS: environment | compliance | tax | investment | tax compliance | property tax | tax avoidance | foreign direct investment (FDI) | law | budget | International Monetary Fund (IMF) | corporation tax | Luxembourg | environmental tax | multinationals | tax planning | transfer pricing | United States | tax reform | standards | European Union (EU) | Europe | BEPS

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