Let’s Hear It For Luxembourg

By Global Tax Weekly

Why does Luxembourg want to deny that’s it’s a “tax haven”? “Profiting ‘fiscally’ from other countries.” Well, we know why: because in dying Europe it’s not politically correct to compete against other countries any more, so Luxembourg has to pretend that it doesn’t have an advantageous tax regime. But it does! And its efforts to cling on to that regime are the reason for giving it a prize. While pretending otherwise, Luxembourg is engaged in fighting a rearguard action against the extension of the Savings Tax Directive and AEI (automatic exchange of information). It refuses, quite correctly, to give in to the EU’s demands for a much more encompassing Directive until all of its competitor nations (Switzerland, Singapore, Hong Kong etc) sign up to similar rules, which hopefully will never be the case. Let’s be clear: people should pay their taxes; but the reality of human nature is they never will until tax rates are reasonable. In fact, Luxembourgish individual tax rates are fairly high; the problem arises because it has a number of advantageous corporate structures which have helped it to be one of the investment capitals of Europe. Thus, like the City of London, it has become the target of the jealous governments of less favored and highly indebted member states of the EU, who wish to stem their loss of investment capital and accompanying tax revenue by imposing a flat, “fair” tax regime on the entire Continent. And one of their weapons is to destroy financial competition between countries, with “harmonized” tax rates and regimes. “Profiting fiscally” means having lower taxes, in less emotive language. This is called competition, and is a Good Thing, not a Bad Thing. The bad guys are the ones who tax too much. There is an argument, of course, that in a single market area, the fiscal rules should be harmonized (as they largely are in, for instance, the USA). That’s correct, of course; but if that fiscal area is in strong competition with other areas, as is the case with the EU, then having harmonized high rates of taxation is suicidal, and that’s where the EU is headed, unfortunately. And the bone-headed rulers in Brussels can’t even see that such is the case. They just plunge on, like lemmings, to their destiny, which on current form looks likely to be economic extinction at the hands of the BRICs and their fellows. So we congratulate the holdouts: Luxembourg, Ireland, Cyprus and a few others, who are still, and who knows for how much longer, flying the flag for low taxes.

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