Luxembourg to win big from minimum tax rate, report says

Luxembourg stands to gain massively from a planned global minimum tax rate for companies, a research group said on Wednesday, suggesting multinationals based in the country are still enjoying sweetheart tax deals.

Revenues from corporate tax for the Grand Duchy would almost double once the global 15% levy on profits comes into force in 2023, said the EU Tax Observatory, which itself received €1.2 million in EU funding to perform a role as an expert advisory body to the European Commission.

The group - led by Gabriel Zucman, who once suggested that Luxembourg should be kicked out of the EU because of its lax tax policies - arrived at the estimates by calculating the difference in tax multinationals are paying now and how much they would pay when the 15% rate kicks in.

The OECD, a club of 38 rich economies, estimates that each year treasuries lose between €100 and €240 billion because of tax avoidance.

The pact, backed by 136 countries worldwide in early October, would set a global minimum tax of 15% for companies generating more than $750 million in global sales, and reallocate some of the taxes based on the countries that they are based in and away from those where they book profits.

In this way, Luxembourg may still offer sweetheart deals to companies such as US retailer Amazon, but the US would then claim the difference in tax, the group said. That way, Luxembourg's taxman could take in an extra €5.8 billion under the new rules, according to the researchers' estimates.

The extra revenue would either come from raising the tax rate to 15% for multinationals that now effectively pay less in Luxembourg or claiming the tax difference from companies that have their headquarter in the Grand Duchy but pay less tax on their profits abroad, the Observatory added.

"In Luxembourg companies are all subject to the same European, international and national taxation standards and rules", the Finance Ministry told the Luxembourg Times in an email on Thursday.

If the country fully applied a 25% rate - the statutory tax rate in Luxembourg City, according to PwC - on all corporations, the taxman would collect €11.2 billion more, the Tax Observatory said. The Grand Duchy is home to 70 multinational companies from which it could collect tax, the Observatory said.

Successive investigations led by international journalists found that Luxembourg approved cushy tax deals to attract big companies and allowed, amongst others, Russian mobsters to hide assets in the Grand Duchy. The latest such investigation, the Pandora Papers, alleged that Luxembourg's finance hub is used to move assets offshore and to confer legitimacy to transactions.

In an exclusive interview with the Luxembourg Times on Monday, Prime Minister Xavier Bettel said he was willing to live with the country's reputation as a tax haven and added that Luxembourg was "compliant with all international conventions".

EU states on the whole are set to be the biggest winners of the tax agreement, gaining an extra €80 billion in tax revenue - just under a quarter of all their corporate tax revenue in 2017, the Observatory said. Luxembourg's extra tax income would put it fourth in the EU behind Belgium's additional €21.2bn, Germany's €13.1bn and Ireland's €12.4bn, the researchers said.

On the other hand, those that the OECD lists as developing countries would see little extra revenue, the Observatory estimates.

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