Low-tax Luxembourg supports reforms

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The Minister of Finance for Luxembourg says his country – labelled by critics as a tax haven for multinational corporations – is committed to sweeping international tax reforms being pushed by the G20 and the Organization for Economic Co-operation and Development, as long as they create a "level playing field."

Pierre Gramegna, on a visit to Toronto to meet with banking industry leaders, told reporters on Monday that low-tax Luxembourg would implement international measures being designed to crack down on tax avoidance practices common among the world's largest companies, provided other countries also follow suit.

"If everybody applies the same rules as the OECD exercise tries to achieve, then it's fine, the rules are the same for everyone," Mr. Gramegna said. "And we're very confident that if those rules are set the same for everyone, Luxembourg can prosper and develop not only its financial centre but its whole economy."

Luxembourg has been at the centre of international controversy over its practice of providing major multinationals with "tax rulings" that allow them to set up so-called "letterbox" companies where they funnel billions of dollars from operations elsewhere and pay corporate tax rates as low as less than 1 per cent, according to an investigation by the International Consortium of Investigative Journalists.

In recent years, many U.S. multinationals – Starbucks, Amazon, Apple – have faced criticism at home, in Britain and elsewhere in the European Union for using Luxembourg and other low-tax countries to reduce their tax bills. The European Commission has launched an investigation into allegations that a tax deal Luxembourg made with Amazon constitutes special treatment for the online retailer that violates EU rules.

The controversies coincide with Luxembourg's ascendancy to the rotating presidency of the Council of the European Union, which takes effect in July. Mr. Gramegna said Luxembourg is co-operating fully with the European Commission investigation, noting that it routinely investigates allegations in many European countries. He also denied that Amazon received any special treatment from Luxembourg, saying that the arrangements it made were open to any company wanting to set up subsidiaries there.

The attractiveness of Luxembourg has made it the fourth-largest source of foreign direct investment into Canada, with companies from around the world using the tiny European country – it has a population of just 540,000 – as a vehicle to invest here. It also ranks fifth on the list of countries that are destinations for Canada's outbound foreign investment, as Canadian companies use Luxembourg as a "gateway" to Europe and elsewhere around the world.

Mr. Gramegna said his country will move forward on the sweeping tax proposals from the OECD, which are expected to be finalized this year, as well as other tax reforms, noting that last year Luxembourg got on the "road to tax transparency" by agreeing to scrap its long tradition of banking secrecy and signing an international treaty pledging to automatically share tax information with other countries.

He acknowledged that some tax structures used by certain companies that now use Luxembourg may no longer be allowed. But he took issue with the targeting of Luxembourg in the media, arguing its tax rulings with major companies were never secret as critics have charged.

"This [international tax avoidance] problem is being recognized by everybody and we are eager to work with all the other countries to solve that issue," Mr. Gramegna said. "We just say it is wrong to pinpoint or finger-point Luxembourg on it."

He said Luxembourg has much more to offer companies than just low tax rates, including global financial expertise and accounting services. China has made Luxembourg an international hub for its banks, he said. Royal Bank of Canada has a large, real presence in Luxembourg, he added, as do several other Canadian multinationals.

Mr. Gramegna also said he would make it a first priority as Luxembourg takes over the EU presidency to make sure the free trade deal between Canada and the EU is finalized.