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Business and Economics > Corporate Taxation

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Cover IMF Staff Country Reports
Luxembourg: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper explores implications for safeguarding fiscal space in Luxembourg. The analysis discusses the main drivers of revenues and expenditures in recent years. Against the background of rising ageing costs, the analysis discusses the fiscal outlook, accounting for the announced government plans, as well as fiscal risks. Additionally, it offers options for helping to safeguard ample fiscal space, in view of the spending pressures and risks. In order to preserve its ample fiscal buffers, which will support the government’s commitment of keeping Luxembourg’s AAA rating, a more prudent fiscal policy would be advisable. Recent revenue increases should not be taken as given, and additional tax reforms should be done in a budget-neutral manner. The growth of compensation of employees should be limited, social programs better targeted, and their efficiency increased. Early pension reform would also help limit spending pressures. Finally, a national framework could help anchor fiscal policy and maintain a credible commitment to prudent fiscal policies.
Keywords:
personal income taxation; copyright page; ample fiscal space; spending pressure; CIT revenue; property taxation reform; GDP share; Corporate income tax; Social protection spending; Personal income tax; Global
Cover IMF Working Papers
International Taxation and Luxembourg’s Economy
Ruud A. de Mooij
,
Dinar Prihardini
, and
Mr. Emil Stavrev
Luxembourg receives ample investment from multinational corporations, in part due to some attractive features in its international tax rules. Around 95 percent of these foreign investments pass through Luxembourg via companies performing holding and/or intra-group financing activities. While their contribution to Luxembourg’s economy is modest relative to their large overall balance sheets, they still generate around 3 percent of GDP in tax revenue, create almost 4500 direct jobs, and spend almost 3 percent of GDP on salaries and purchases of business services. Ongoing changes in the international corporate tax framework pose risks to these economic contributions, which this paper attempts to quantify. It also discusses options for reforms in Luxembourg’s tax system that could help offset adverse revenue and economic effects.
Keywords:
Luxembourg; International Tax; Foreign Direct Investment; Special Purpose Entities.; WP; Luxembourg economy; Luxembourg government; tax system; CbCR datum; climate change commitment; energy efficiency target; Luxembourg driver; Luxembourg headquartered MNEs; Luxembourg MNEs; Special Purpose Entities; property tax; Corporate income tax; Special purpose vehicle; Income; Environmental taxes; Global; Europe
Cover IMF Staff Country Reports
Luxembourg: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Luxembourg
International Monetary Fund. European Dept.
This 2019 Article IV Consultation discusses that Luxembourg’s growth prospects remain favorable, but downside risks arise from a weaker-than-expected global growth, a disorderly Brexit, changes in international tax rules, and a sharp tightening of global financial conditions. Domestically, rising real estate prices could exacerbate already elevated household indebtedness and increase affordability challenges. Fiscal policy should aim to maintain a strong fiscal position and preserve buffers. The government’s plans, while appropriate, will result in a slightly expansionary budget in 2019. The cost and timeline of the planned measures over the medium term remain to be determined. Given risks ahead, including from potential changes in international taxation, Luxembourg should build on its strong fiscal record and preserve sizeable buffers. Structural policies should focus on addressing key gaps in the economy. Further reforms of the pension system are needed to ensure its sustainability, while considering intergenerational equity and trade-offs of various reform options.
Keywords:
ISCR; CR; government; Luxemburg; IMF staff estimate; Q4; liability positions vis-à-vis nonresident; increase affordability challenge; Luxembourg economy; IP box regime; IMF's article; Mutual funds; Corporate income tax; Pension spending; Global; Europe
Cover IMF Staff Country Reports
Luxembourg: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Luxembourg
International Monetary Fund. European Dept.
This 2018 Article IV Consultation highlights that the economic growth in Luxembourg reached 2.3 percent in 2017, above the European Union average, and was driven by net exports of financial services and private consumption. Growth is projected at 3.5 percent for 2018, with continued strong job creation, and a temporary slowdown in inflation. In 2017, buoyant corporate tax revenues contributed to a fiscal surplus of 1.4 percent of GDP. The full impact of 2016 tax reform, and a continued need for high public investment are expected to result in a small fiscal surplus over the medium-term.
Keywords:
ISCR; CR; government; Luxemburg; IP box regime; surplus; liability positions vis-à-vis nonresident; current account surplus; authorities' reform effort; government's commitment; staff appraisal; Mutual funds; Financial Sector Assessment Program; Corporate income tax; Global; Europe
Cover IMF Staff Country Reports
Luxembourg: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper considers features of the Luxembourg tax system that may be susceptible to changes in international tax transparency standards and surveys related policy options. Luxembourg’s predictable and generally low-rate tax system has helped establish it as a leading financial and commercial entrepôt and has supported its fiscal revenues. Its revenue base could, however, be susceptible to changes in the European Union and global tax environment. This paper highlights that to address potential challenges to Luxembourg’s revenue base, the tax policy review should explore selective rate increases and base broadening measures. Moreover, the tax practices should seek to avoid encouraging unnecessary complexity in corporate ownership structures and intragroup financial contracts.
Keywords:
ISCR; CR; firm; Luxemburg; bank; holding company; rate; Luxembourg tax policy; Group structure; nonbank company; bank supervisor; EU tax legislation; city state economy; bank shareholder suitability; franchise name; EU energy tax reform; Corporate income tax; Excises; Bank supervision; Value-added tax; Financial sector; Europe
Cover Policy Papers
Spillovers in International Corporate Taxation
International Monetary Fund
This paper explores the nature, significance and policy implications of spillovers in international corporate taxation—the effects of one country’s rules and practices on others. It complements current initiatives focused on tax avoidance by multinationals, notably the G20-OECD project on Base Erosion and Profit shifting (BEPS). The paper draws on the IMF’s experience on international tax issues with its wide membership, including through technical assistance (TA), and on its previous analytical work, to analyze spillovers and how they might be addressed. In doing so, it goes beyond current initiatives to look at a wide set of possible responses.
Keywords:
PP; double taxation; residence country; tax system; single tax; taxable income; transfer pricing; withholding tax; income tax; cost of capital; companies resident; capital gain; Intra-company debt shifting; Corporate income tax; Corporate taxes; Spillovers; Personal income; Transfer pricing; Global
Cover IMF Staff Country Reports
Luxembourg: Selected Issues
International Monetary Fund
This Selected Issues paper analyzes the effect of aging on pension expenditure in Luxembourg. The paper highlights that Luxembourg is in a relatively favorable position because its GDP growth has been well above the average for industrialized countries in the post-war period. Moreover, growth has been unconstrained in that much of it has been based on the influx of foreign capital and labor. The paper provides some illustrative simulations of pension expenditure in Luxembourg, and describes the demographic developments. After reviewing methodological issues, simulations of pension expenditure until 2050 are also presented.
Keywords:
ISCR; CR; pension system; investment funds; real GDP; withholding tax; labor market; GDP growth; tax rate; advantage Luxembourg; Luxembourg financial center; Luxembourg economy; labor force; Pension spending; Pensions; Aging; Corporate income tax; Employment; Europe
Cover IMF Working Papers
Corporate Income Tax Harmonization and Capital Allocation: Corporate Income Tax Harmonization and Capital Allocation
International Monetary Fund
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Keywords:
WP; capital stock; financial asset; tax treatment; income tax; interest rate; tax wedge; return on equity; Corporate income tax; Corporate taxes; Effective tax rate; Tax wedge; Depreciation; Global