January 6, 2023
When the EU finally adopted a regulation to apply the worldwide minimum corporate tax rate last year, it marked a turning point for international taxes. While certain changes were warmly received in Luxembourg, others garnered criticism from the public.
In December, the EU decided to enact the most thorough reform of global taxation after Hungary and Poland dropped their concerns. It is a massive project that would increase the minimum effective tax rate for businesses to 15%.
Beginning in 2024, the minimum rate will take effect. It is unclear if this causes Luxembourg’s tax revenues to increase or decrease. According to Pascal Saint-Amans, the former tax chief for the OECD who oversaw the reform, no multinational is expected to leave the Grand Duchy as a result.
Although Yuriko Backes, Luxembourg’s new finance minister and a veteran diplomat, backed the minimum tax rate, she remained opposed to any Brussels crackdown on tax evasion.
A proposed order known as “Unshell” would require tens of thousands of shell firms with offices in Luxembourg to demonstrate that they have personnel, business, and material activity there or risk losing their tax advantages.
The finance ministry stated at the beginning of 2022 that the regulations “would overstep the mark” and added that “the scope of the plan would be large and enterprises with actual economic utility might be possibly targeted.” Particularly Luxembourg’s fund industry, which suffered in 2022, may have additional reporting requirements given that holding corporations are used there to hold funds legally.
In 2022, the nation’s tax office was already busy hiring new knowledgeable personnel to assist with a deluge of fresh paperwork and modernize antiquated IT systems.
The well reported hiring drive, however, failed when the tax office was only able to fill 72 of the 180 positions it required by 2022. Only Luxembourgers are permitted to fill specialist positions, and the remuneration is lower than in the burgeoning professional services sector, which hinders hiring attempts.
Source: Luxembourg Times
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