IMF Announces Luxembourg Tax System Fragile To External Uncertainty

; posted on
April 5th, 2018

The International Monetary Fund (IMF) released a report on Luxembourg’s economic outlook and assessment of possible risks. In the report, the IMF points out that both the tax system of the country and the incentives are fragile and less durable to potential uncertainties and risk.

Risks in Short Term

The report affirms the favourable growth outlook in Luxembourg, which heavily replies on business-friendly regulations and attractive tax policy. However, a tax frame as such is more sensitive to changes in dynamic international tax context and suffers from possible impact on the economy and tax revenue. Volatilities are stemmed from international corporate tax developments, uncertainties associated with post-Brexit arrangements, and financial volatility associated with an unexpectedly large monetary policy tightening or a spike in global risk aversion. The implementation of the evolving international tax transparency and anti-tax avoidance agenda, could impose side effects on Luxembourg’s activity and tax revenues, although the risk could be minimised by its strong fiscal buffers and fiscal stability.

Efforts from Luxembourg to Cope with Avoidance

The report recognised efforts made by Luxembourg in implementation of the EU and international tax transparency and anti-tax avoidance agenda despite possible risks to tax revenue. Luxembourg has joined the EU-wide automatic exchange of tax rulings project and submitted to Parliament a draft law to introduce a new (BEPS-compliant) IP Box regime. It will also timely transpose the two EC Anti-Tax Avoidance Directives into domestic law, including the establishment of best-practice rules for Controlled Foreign Corporations and ensuring that special tax regimes and transfer pricing arrangements are aligned with evolving international and EU standards.

Source: IMF

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