OECD Praises Luxembourg’s Tax Regime
The OECD has praised Luxembourg’s tax regime for its predictability, although it sounded a warning about the volatility of tax revenues from the financial sector.
In its latest assessment of the Luxembourg economy, the OECD said that Luxembourg’s strong economic performance was due partly to “business-friendly regulations, a predictable tax system, and sound fiscal policies.”
It observed that budget surpluses are allowing the Government to reduce corporate income tax, and to introduce new tax credits for investors and low-income earners.
Under legislation approved last year, the corporate tax fell from 21 percent to 19 percent in 2017, and will decrease to 18 percent in 2018.
In addition, the report said that Luxembourg is “one of the most egalitarian countries of the OECD” thanks to the redistributive tax and transfer system.
However, the OECD noted that a high dependence on the financial sector posed risks, particularly with regards to the stability of tax revenues.
“The share of fiscal revenues from the financial sector has declined markedly since the financial crisis, possibly reflecting carried forward losses by banks, and [a] negative [economic] shock would lower the fiscal revenues further,” the report said.
In other areas of the tax system, the report recommended adjustments to the tax and benefit system to increase incentives to work for low-skilled younger workers, older workers, and second earners.
The OECD also advised the country to increase excise duties and taxes on transport fuel, which are lower than in neighboring countries and which contribute to high traffic volumes and pollution.