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Luxembourg set to lose big from G7 tax deal, study says
Corporate tax

Luxembourg set to lose big from G7 tax deal, study says

2 min. 18.06.2021
Winners will far outnumber the losers in Europe, largest economies to benefit most
Luxembourg finance minister Pierre Gramegna
Luxembourg finance minister Pierre Gramegna
Photo credit: Pierre Matgé

By Yannick Hansen and Thomas Klein

Luxembourg look set to be one of the biggest losers from a plan to set a minimum corporate tax rate of 15% around the world, together with Ireland, the Netherlands and Hungary, a study by consultancy firm Oxford Econmoics released on Tuesday has found.

The minimum tax rate, aimed at preventing giant multinationals from diverting profits to countries with lower tax rates, would add six percentage points to Luxembourg's national debt by 2028, the study forecast.

The biggest loser amongst Europe's corporate tax havens will be Ireland, which  will see its national debt increase by nine percentage points.

"Worse outcomes not just for Ireland, but also for Luxembourg and the Netherlands, are possible. The economic performance of these countries is especially dependant on their ability to attract foreign investment, which could be undermined by the tax reforms," the study said.

Details of the implementation of the tax reforms are yet to be thrashed out and could still significantly impact their effect on public finances, the author of the study, Ricardo Amaro said.

A week ago, G7 finance minister reached a historic agreement to introduce a minimum 15% corporate tax rate across the world. The proposal is now set to be discussed in the larger G20 in October.

The European Commission regularly criticises Luxembourg, Ireland, the Netherlands, Malta and Cyprus, letting companies get away with aggressive tax planning strategies that other countries would question. 

In 2018, over one third of all profits generated by big US multinationals in Europe were booked in Luxembourg, Ireland and the Netherlands alone, the study found. Yet, those countries accounted for less than 5% of all of e-commerce revenues generated by companies in Europe.

Luxembourg also has been under pressure over its secret tax rulings for years. A recent ECJ ruling ordered French utility giant Engie Global to pay back €120 million it had received as illegal state aid in the Grand Duchy.

If the 15% minimum tax rate is introduced, Europe's major economies are set to benefit the most from it, the study found, reducing Germany's and France's debt by 1.4 percentage points and Italy's by 1 by 2028. Overall, the eurozone would see its debt shrink by 0.4 points in the same period.

The OECD, a club of 38 rich economies, estimates that each year treasuries lose between 100 and 240 billion US dollars due to tax avoidance.

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