Monday

21st Jan 2019

Brussels orders Luxembourg to repeal tax law

The European Commission has ordered Luxembourg to repeal by 2007 an 80 year-old law that "grants unjustified tax advantages" to the financing arm of banks, insurers and money managers.

"The European Commission has decided that the preferential tax regime for exempt, [multimillionaire] and financial holdings…is in violation of the state aid rules," an EU spokesman said on Wednesday (19 July).

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Under the 1929 law, Luxembourg's corporate tax code attracts big foreign companies by letting them duck taxes on earnings, dividends, interest and royalties.

Banking accounts for a tenth of jobs in Luxembourg and a fifth of its economic output, making the country's 450,000 citizens heavily reliant on the sector.

Wednesday's commission decision also requires Luxembourg to phase out the tax advantages for companies already benefiting from the scheme by 2010.

EU competition commissioner Neelie Kroes said in a statement that the move "will help to restore a level playing field in the EU's financial services industry."

Luxembourg economy minister Luc Frieden said that the country would abide by the EU order and that Brussels' action would only have limited impact on the financial services industry.

"The holdings are no longer so important for Luxembourg," because they are now mostly used for managing the money of wealthy individuals, he said according to AFP.

Mr Frieden explained that his government is looking at other ways to attract companies and that "Luxembourg will remain an attractive place for wealth management, which is one of the pillars of the financial sector."

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