IMF urges Luxembourg to diversify tax base
The International Monetary Fund has urged authorities in Luxembourg to consider diversifying the nation’s revenue sources in light of international tax changes that could negatively impact the country’s economy, reports Tax News.
The Fund said in a statement that it welcomed Luxembourg’s continued participation in EU and OECD/G20 tax transparency initiatives, but encouraged the authorities to assess the impact of any tax base erosion at home, and to develop options for diversifying revenue sources.
It said that structural reforms to diversify the economy beyond the financial sector are helpful to improve Luxembourg’s long-term growth and revenue prospects.
The IMF said that Luxembourg’s current budget and medium-term fiscal plans appropriately address falling value-added tax (VAT) revenues from changes to EU value-added tax rules on electronic commerce.
Luxembourg’s value-added tax (VAT) rates rose on January 1, 2015, to counteract the revenue hit from changes to EU place of supply rules for broadcasting, telecommunications, and electronic (BTE) services from the same date, which mean that BTE services are newly taxable in the location of the consumer at that member state’s rate, rather than in the location of the supplier.
With the exception of its super reduced rate, Luxembourg has hiked each of its VAT rates by two per cent, establishing a headline rate of 17 per cent and reduced rates of eight and 14 percent. The rate of the super reduced rate is unchanged at three percent, but its scope was reduced.
The EU’s previous rules had favoured Luxembourg, which has the European Union’s lowest VAT rates, as businesses had located their operations in the nation to make tax-efficient digital supplies to EU consumers. Luxembourg has secured compensation from European Union member states worth about US$1.375bn over four years.
