Contractor compliance in Luxembourg: Tax crackdown continues

Contractor compliance Luxembourg

20th December 2019

Luxembourg, a country that regularly faces tax haven accusations, has recently been taking a number of steps to fall in line with global tax standards that could affect contractor compliance.

Despite being one of the smallest states in the world, the Grand Duchy of Luxembourg is the second richest country on earth, and home to one of the most prolific financial services sectors in Europe. Therefore, it’s no surprise that it’s a strong draw for overseas contractors.

In addition to this, skills shortages are affecting the region, with a report from PwC stating that Banks in the grand duchy are struggling to hire personnel. However, contractors will need to be aware that it is no longer a soft touch on tax and compliance.

In fact, recent reports have shown that the amount of financial information requests received by Luxembourg in the past ten years has jumped from 832 to 2,309 since the G20 ended bank secrecy. Here’s what you need to know.

Contractor compliance in Luxembourg: data sharing increases

Increased data sharing under the Automatic Exchange of Information (AEOIA) and the Common Reporting Standard (CRS), has meant that contractor compliance is under greater scrutiny in Luxembourg and across the globe.

In fact, there have been thousands of bilateral ‘exchange relationships’ between countries, which have enabled more than 250,000 requests for information over the past decade.  In 2018, members of the OECD exchanged information on 47 million financial accounts, covering total assets of £3.7 trillion.

‘The global forum has created powerful momentum to change the way countries think about tax matters’ said Pierre Gramegna, Luxembourg’s  finance minister, and creates the impetus to ‘establish a true level playing field in the area of tax transparency.’

However – the country is still not fully in the clear regarding compliance. In an OECD ranking of countries from non-compliant to compliant, Luxembourg still falls short of reaching the top label, as it was deemed only ‘largely compliant’.

Luxembourg tax crackdown

This is just one of many recent actions taken to rid the country of its tax haven image. After the LuxLeaks scandal in 2014, a controversy initiated after group of journalists leaked confidential information about Luxembourg’s tax rulings, the destination has been taking concerted action to create changes.

Here are some of the other recent steps Luxembourg has taken that could increase scrutiny on contractor compliance:

  • The country’s government has laid down draft legislation to enact the second EU Anti-Tax Avoidance Directive into domestic law. This aims to combat current avoidance practices which mitigate the tax liability for transactions both within and outside of the EU.
  • In 2017, we covered the landmark EU ruling against Amazon in Luxembourg, which from 2006 to 2014, allegedly reduced Amazon’s taxes by a whopping €250 million through funnelling profits into the company. This meant that during this eight-year period, the company effectively paid a total tax rate of just 7.25% in Luxembourg.

Contractors need to be aware

When notorious tax havens such as Luxembourg, Switzerland, and Panama are enacting crackdowns, it’s clear the global movement towards tougher tax is gathering pace. Those seeking work in the nation, or anywhere else in the world, will need to make contractor compliance a top priority. However, this is easier said than done. For this reason, we advise seeking out experts that can take the burden off your shoulders, and help you get back to the job at hand.

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