Luxembourg: Tax reform, addressing BEPS recommendations

Luxembourg: Tax reform, addressing BEPS recommendations

Luxembourg’s government in late February 2016 announced a proposal for tax reform for 2017—reform that may provide ways for implementing the base erosion and profit shifting (BEPS) recommendations while allowing for a competitive tax framework.

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The combined actions of the OECD and the European Union will lead to a broadening of the taxable basis of corporations once the BEPS actions are transposed into the domestic law of each state. As a counterbalance measure, more and more countries are considering decreasing their corporate tax rates. The Luxembourg government recently took its first step in this direction by announcing a decrease in the aggregate corporate tax rate to approximately 27% as from 2017 and 26% as from 2018. Still, the reduction of the corporate tax rate may not, in and of itself, be sufficient to make Luxembourg more enticing for corporations and highly qualified workers. In order to further strengthen the economic and operational substance of companies, several paths may need to be considered, such as:

  • Encouraging the capitalisation of companies via a reduction of the tax bias existing between debt and equity financing
  • A decrease in and/or repeal of the net wealth tax 
  • Establishing a new intellectual property (IP) regime compliant with international standards and additional measures (such as tax credits) to develop R&D activities
  • Improving the tax framework for highly qualified workers who contribute to innovation and the local creation of added value

 

Read a March 2016 blog article prepared by the KPMG member firm in Luxembourg: Tax reform: how to respond to the quest for substance in a post-BEPS world?

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