On 16 May 2016 the IMF issued a report following the conclusion of talks in Luxembourg under Article IV of the IMF’s articles of agreement.
Economic growth in Luxembourg has been strong and reached 4.8% in 2015 driven by net exports of financial services. Growth for 2016 is projected at 3.5% with strong employment creation. Strong tax revenue contributed to a fiscal surplus of 1% of GDP in 2015. The tax reform proposed in 2016 would reduce personal taxation and corporate income tax from 2017. This is likely to result in a balanced fiscal position in the medium term.
There are downside risks to growth from weaker international activity and stress on the financial markets. Luxembourg’s implementation of the international tax transparency agenda could weigh on economic activity and on tax revenue. Growth prospects are however considered by the IMF to be strong despite the challenges relating to oversight of the financial system and adapting the tax regime to the international environment. Structural reforms should be implemented to diversify the economy and increase competitiveness.
The IMF welcomes Luxembourg’s engagement with the EU and global tax transparency initiatives. The ongoing tax reform gives an opportunity to broaden the corporate tax base and close opportunities for tax avoidance. Contingency measures should be put into place to deal with any additional revenue risks arising.
