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With The Road Running Out For Tax Havens, Can Luxembourg Finally Remake Its Financial Sector?

By MENAFN
 
In a long-awaited report, the OECD recently released two blueprints of how to completely overhaul the way that multinational corporations are taxed. One of the most important elements of the proposed remodeling of the global corporate tax code would be new rules ensuring that digital companies—including tech giants such as Google and Amazon—pay tax where they carry out their business, rather than where they register subsidiaries.
 
This particular reform would have a significant effect not just on the companies which have for years taken advantage of legal loopholes and favorable tax regimes to slice their tax burdens. As the OECD noted while countless countries would benefit from the tax regime reform, “European investment hubs”—the likes of Luxembourg, the Netherlands, Switzerland, and Cyprus—would undoubtedly lose the tax base. What the OECD charitably calls “European investment hubs” have long been singled out as tax havens, with Luxembourg earning particular notoriety after the LuxLeaks scandal uncovered the sweetheart deals which helped multinational giants push their tax bills near zero.
 
Even before the OECD-led initiative to carry out a broad reform of the international corporate tax system, it was clear that tolerance for tax havens and special tax regimes were waning, a trend that has only accelerated as the coronavirus pandemic has taken a hatchet to governments’ budgets. Luxembourg is now attempting to straddle a delicate balance, distancing itself from its reputation as a nucleus of tax avoidance while trying to maintain a competitive edge as a global financial hub. If the Grand Duchy is going to pull off this transformation, it will have to address the lingering gaps leaving it open to dodgy financial flows.
 
 
Luxembourg freeport a major reputational drain
 
One of the sticking points for Luxembourg to make a clean break with its tax haven past is the maximum-security warehouse known as Le Freeport Luxembourg, which has been allowing the super-rich to store their priceless art and other treasures in its climate-controlled vaults since 2015. Despite Le Freeport’s insistence that the facility’s main appeal is lower insurance premiums and easy access to the tarmac at Findel Airport, it’s the more likely fact that goods inside the freeport can be stored indefinitely, and even bought and sold, without incurring tax as long as they don’t leave the facility.
 
After a star-studded grand opening in 2014, the freeport quickly became a thorn in Luxembourg’s side. First came the “protracted public-relations disaster” which befell the freeport’s founder, Swiss entrepreneur Yves Bouvier. Bouvier has spent years fighting allegations from his former client, the Russian billionaire Dmitry Rybolovlev, that Bouvier schemed to overcharge him by more than $1 billion in 37 art deals. On top of his ongoing legal tussle with Rybolovlev, Bouvier is under investigation in his home country of Switzerland for alleged tax evasion, and facing media reports that he tried to blackmail a Swiss tax inspector to get the investigation dropped.
 
Source: MENAFN.COM