On Wednesday 28 June, a discussion between business representatives and the finance minister on taxation took place at the chamber of commerce.
Photo: Maison Moderne
Gramegna: a low corporate tax rate is not the only factor in competitiveness
On Wednesday 29 June, the Chamber of Commerce and the Ministry of Finance had organised a debate with and for companies to discuss the recent international changes in taxation.
Michel Wurth, chairman of the chamber, opened the session and suggested a few ideas for discussion: that the tax rate for companies should be reduced because Luxembourg is on the wrong side of the OECD average; secondly that the taxes for startups and taxation on entrepreneurship should be reformed (especially bonuses should not be taxed too much). Wurth also identified problems in the structures of balance sheets, and he raised the red flag on the wealth tax.
Finance minister Pierre Gramegna, who will also be present at the roundtable on taxation for individuals next week, started off by saying that taxation was not the only factor in competitiveness. A country’s attractiveness was influenced by other things as well. He noted that tax regimes had changed more profoundly in the last 10 years than in the previous 100 years. Getting an agreement on Beps was done in record time, and included hundreds of proposals.
The US’s position was not clear, and the government demanded exemptions because they had “equivalent measures” in place.
For Luxembourg, it was essential to have a level playing field. Gramegna was in favour of reform and of fair taxation of multinational companies. He stressed that the tax system had to fulfil three criteria: to be sustainable, selective and strengthen competitiveness.
The recent tax reform did all this for both companies and individuals, however, Gramegna argued that it had favoured individuals because they had suffered more from the reforms of the “Zukunftspak”. He said that the corporate tax rate had been cut from 29% to 26%. He was wondering whether it should be further reduced or other measures in favour of companies should be taken in the future, and that his team was working on that.
Gramegna stated: “we want to sustain and support investments and startups.”
Carlo Thelen, managing director of the chamber, said that the goal should be a median corporate tax rate of 21% and that Luxembourg needed a roadmap. He argued that a low tax rate would also have a positive impact on salary politics.
Keith O’Donnell of Atoz, a tax advisory firm, argued that his clients thought a 26% rate was rather high and deterred them from establishing their company in Luxembourg. He found that companies needed more flexibility, more support for R&D, an updated intellectual property law and different notional interest rates.
Thelen pointed out that stock indices in Europe were high and this has a direct impact on growth Luxembourg, and that the exceptional growth levels did not all come from Luxembourg companies and industry.
Gramegna stressed that the tax reform was more wide-ranging and bigger than those that the German finance minister Wolfgang Schäuble was planning. He said that while the UK’s finance minister, George Osborne, had announced a big roadmap, politics changed so quickly that the roadmap was not necessarily implemented. While others talked about major reforms, Luxembourg had already done them, he said.
The headline tax rate was not everything, Gramegna insisted. He repeated that he wanted pro-cyclical policies, with added incentives for R&D and investments.
Nicolas Buck, chairman of Fedil, a business federation, started off by saying that Luxembourg’s tax system was divided into three classes: the big multinational companies, finance and banks, and the rest of the economy. He argued that the recent tax reform had the lowest impact on smaller companies, because it only really mattered for huge profits. He raised the issue of communal tax rates for companies, and argued that the government should intervene in this matter, despite communal independence.
Gramegna countered that the reform of local government finances had made it less attractive for local councils to levy high taxes on companies. He pronounced himself against Buck’s idea to introduce a tax exemption on small company profits because it would not be fair.
Concerning stock options, Gramegna said they were still the best way to motivate workers to work hard, but the element of risk had to be there. In Luxembourg, there was often no risk and hence abuse had taken place.
On intellectual property, Gramegna announced that a new draft law would be presented to parliament before the summer recess.