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Is Luxembourg's tax regime under siege?


First published in the Financial Times, 24 July 2014

Luxembourg has a reputation for stability and professionalism, demonstrated by the resilience of its huge banking sectorin the financial crisis. But the rumbling discontent over Luxembourg’s tax practices is now threatening its prosperity. Luxembourg is under suspicion of offering “sweetheart” deals to big companies, in breach of EU rules on state aid.Nerves are on edge in the Grand Duchy after the European Commission launched an investigation last month into tax “rulings”, embroiling Fiat, the car company, and potentially others.

This undercurrent of hostility grounds Brussels’ state aid challenge to Luxembourg, in the view of some of the country’s tax professionals. Keith O’Donnell, Atoz, Taxand Luxembourg, says:

“It looks more political than anything else. I would be very surprised if they found anything.” The fabled secrecy and informality of Luxembourg’s system of rulings – confirming how intra-company deals are taxed – is a misconception, he says, “The truth on the ground is far more boring than people make out.”

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Taxand's Take

The government has said it is “pretty confident” about its handling of tax issues but even so there is anxiety in Luxembourg over the commission’s actions.Multinational with operations in Luxembourg should keep afresh of all developments in order to remain compliant.

Taxand's Take Author

Keith O'Donnell
Taxand Board member & Taxand global real estate tax service line leader