Economy & Politics

When the FIS goes to checkout

While the covid crisis is mistreating public finances, the CGFP and the Robert-Krieps Foundation are arguing for higher taxation of specialized investment funds. Investment entities that manage more than 596 billion in assets but generate only (very) little revenue for the State.



While the covid crisis mistreats public finances, the CGFP and the Robert-Krieps Foundation are arguing for higher taxation of specialized investment funds. Investment entities that manage more than 596 billion in assets but generate only (very) little revenue for the State.

Luxembourg is currently home to 3,374 specialized investment funds (FIS) managing some 596 billion euros in net assets placed in land or real estate transactions. The tool was created in 2007, and seeing the amounts invested, it seems to make many investors happy. And for good reason: all the profits generated by these SIFs escape income tax, capital gains tax and commercial tax. Just one subscription tax (at 0.01% of net assets) is requested from holders of such a fund.

Suffice to say that these SIFs do not earn much in the public funds, even though they greatly benefit their owners, Luxembourg or foreigners. For a long time now, the deputy Lénk David Wagner denounces this state of affairs. He even signed a motion that was debated in the House this summer. And now two strong supporters have just followed him to ask that the taxation on these funds be reviewed. On the one hand, the Robert-Krieps Foundation, on the other the General Confederation of the Public Service (CGFP).

Schuhe TVA Kind Mutter

If Germany has opted for a temporary reduction in the tax that affects all goods and services to boost consumption, Luxembourg does not intend to follow the same path. Pierre Gramegna believes, Friday, that the measures adopted to promote the recovery are sufficient.

And whether in the report of the think tank (close to the ideas of LSAP) or through the voice of Romain Wolff (president of the confederation of civil servants), the message is the same: at a time when the State needs new revenues to finance the impacts of the crisis, the “normal taxpayer” or “Mr. and Mrs. Everybody” will not have to suffer an increase in taxes on earned income. If money is to be found, it is in particular in the pocket of the “super-taxpayers” that it must be taken, invite the two parties.

In itself, the idea is nothing new. Some have been calling for an increase in the tax burden on this type of fund for years. Even the government coalition agreement concluded in 2018 between DP, LSAP and Déi Gréng raises the question, speaking of the subject as a “tax injustice”. But time goes by and … nothing happens. Just the Minister of Finance, Pierre Gramegna (DP) he mentioned a possible reform of the tax system of the FIS. But, last June, in front of the deputies of the Housing and Finance committees, ‘the big money maker’ immediately warned: there will be “nothing spectacular”.

Lok, Coronavirus, Baustellene wieder offen, Post Gare Jallay / Luxemburger Wort

More than 10.4 billion euros have been invested by the State to deal with the economic consequences of the covid-19 pandemic. A commitment which will have consequences on the finances of the State advances Pierre Gramegna (DP).

Instead, the CGFP and the Robert-Krier Foundation are calling on the government to thoroughly review the regime granted to these funds. The latter constituting, according to them, only a “ruse to deflate or even make non-existent the tax burden” of the owners of FIS. Except that the time is no longer for fiscal largesse. The government is indeed seeing its revenues melt (- 1.1 billion tax revenues in the first quarter) while it opens the taps wide to support the country’s activity.

For partial unemployment alone, 808 million euros of unforeseen expenditure were necessary over the first seven months of the year. It was also necessary to finance leave for family reasons (more than 280 million), the 183 million direct aid already granted to companies, the various rescue plans first and then economic recovery (Neistart and green recovery), support tourism, hotels and restaurants, etc.

The “broad shoulders”

On the side of the Ministry of Finance, it is radio silence on the issue. Certainly, the subject will be well addressed in the context of the potential future tax reform, but no question of saying more. “Work is actually in progress and a text is in preparation”: this is the (meager) official version. Pierre Gramegna obviously does not intend to frighten investors, even if these specialized investment funds constitute a possible significant windfall to support a budget that we know is difficult to support.

A board displays the closing numbers after the closing bell of the Dow Industrial Average at the New York Stock Exchange on January 2, 2018 in New York. Wall Street opened 2018 on a winning note Tuesday, bidding Nasdaq to its first-ever close above 7,000 points following a rally in technology shares. At the closing bell, the tech-rich Nasdaq Composite Index had jumped 1.5 percent to end the first session of the year at 7,006.90. The S&P 500 also notched a fresh record, gaining 0.8 percent to close at 2,695.79, while the Dow Jones Industrial Average rose 0.4 percent to 24,824.01, about 13 points below its all-time record. / AFP PHOTO / Bryan R. Smith

Very low interest rates, rising fees, unstable world stock markets: Luxembourg’s 130 banks have been impacted differently by these changes. Retail banks are doing the best in the end, says Statec.

However, as the CGFP reminds us, “sooner or later, we will have to ask ourselves the question of the financing” of the measures undertaken to support the Grand Duchy. There was no question then of “relying on a tax increase on individuals” insists the confederation. Also, Romain Wolff insists that those who have “broad shoulders” participate in the financial effort.

Same opinion for Olivier Cano and Max Leners, the authors of the Robert-Krieps Foundation report. They want to put an end to the 13-year-old law which grants Sicav-FIS a “outrageous tax optimization“. A privilege considered individualistic, at a time when the situation would require each economic actor to play it collectively. And to plead for a return in the coffers of the State of more taxes collected on this speculative reserve. The Foundation even speaks of “tax waste” on the part not recovered by public finances.

Tax justice

How much are precisely these “tax waste“? The Foundation does not have the answer. But the structure knows that the sums climb quickly when we rectify even a few percentages the tax burden. Thus, she notes that if – another example – the government undertook to abolish the current system of stock options, 135 to 200 million euros additional could fall into the coffers of the State.

For the Chamber of Civil Servants and Public Employees (CHFEP), the 2020 state budget project looks auspicious but this has not prevented it from making some criticisms of the government’s priorities in terms of taxation and environment.

Admittedly, the country can be satisfied with being still rated AAA by the rating agencies and being able to raise loans at negative rates, but a little more tax justice would make it possible to play less with the debt to ensure the expenses of a budget which, initially, was to approach 20 billion euros for 2020.

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