IMF Warns Luxembourg Over Surplus


By Global Tax Weekly

It is possible to have sympathy for governments on occasion; there seem to be instances when they just can’t win. They’re constantly being told by the likes of the OECD and the IMF to eradicate special tax regimes, widen their tax bases, reduce income taxes where possible, and shift the tax burden onto consumption. Luxembourg is one country doing just that. Last year, the Government decided to phase out its patent box regime – exactly the sort of special tax regime the OECD sees as largely responsible for BEPS – and late last month it announced reductions in income tax for companies and low- and middle-income workers. These measures come after a 2 percent increase in the standard rate of value-added tax in 2015. Yet, according to the IMF, this is still wrong – the tax cuts are viewed as too deep, and the tax base too narrow, with the IMF warning that the Principality is likely to use up its fiscal surplus if it continues on this course. Not that the IMF’s recommendations are binding, but it’s arguably up to Luxembourg to do what it sees fit with its surplus. And any other country not receiving assistance from the Fund for that matter!

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