Pierre Gramegna (Finance Minister): Luxembourg’s success in attracting PE business
Pierre Gramegna, Luxembourg’s Finance Minister, argues that Britain’s decision to leave the EU has prompted an inflow of private equity firms to Luxembourg, demonstrating the government’s success in maintaining the country’s attractiveness.
Competing on an increasingly level playing field, how can Luxembourg sharpen its edge in the financial sector?
If the playing field was truly level, we would not have been so successful in attracting companies as a result of Brexit. Irrespective of Brexit, financial groups see Luxembourg as one of the best locations for financial services. A recent U.S. News & World Report classified the Grand Duchy as the country most open for business, further confirming our system is competitive and welcoming for business – which is why our financial industry continues growing, including as a hub for private equity. Our average 3.5% p.a. economic growth over the past five years is strong for a mature economy with a developed financial industry. But, at slightly less than double the average growth across the EU, it’s not excessive.
“Few nations have Luxembourg’s long tradition of openness that gives PE firms the precious freedoms to enter and exit with total transparency and efficiency.”
What goals have you set for the financial sector in your second term?
Part of our promise is to maintain Luxembourg’s AAA-rating, which bolsters financial institutions’ confidence, encouraging location of their European headquarters or investments here. We see three opportunities for the development of the financial centre. One is for the financial industry to become more sustainable. Financing the green economy continues to be the priority for both legislative and commercial initiatives. We will roll out our sustainable finance roadmap to create stable institutions and infrastructures to measure ourselves against other countries. We can build on recent successes such as the Luxembourg Green Exchange. We have also developed the EIB Luxembourg Climate Finance platform for green investments in which the government takes the initial risk as a junior partner, as well as the International Climate Finance Accelerator to encourage asset managers to create green funds. Finally, we are pioneering the labelling of green products with LuxFLAG with a three-year funding programme. The second opportunity is encouraging fintech, especially digital transformation and AI. The Luxembourg House of Financial Technology (LHoFT)is already full, demonstrating the success of our international appeal: innovators are flooding in from Europe and beyond, choosing Luxembourg as their EU Single Market hub. Finally, Brexit shows our ecosystem is seen as competitive by the PE industry and I encourage the LPEA to join the Finance Ministry to examine how we can increase our attractiveness and identify factors that have prompted the largest PE companies to locate in this country.
What future developments do you see for private equity and the broader financial industry in Luxembourg?
Few nations have Luxembourg’s long tradition of openness that gives PE firms the precious freedoms to enter and exit with total transparency and efficiency. Our tax system is attractive with our government reducing corporate tax from 26% to 25% this year. Longstanding features of Luxembourg’s tax regime remain advantageous, despite our embrace of the principles on base erosion and profit shifting (BEPS) put forward by the OECD and G20. Initially, everybody feared Luxembourg would become less attractive, but as the implementation of this broader tax base is occurring everywhere simultaneously, it does not put Luxembourg at a disadvantage. Similarly, as they also apply throughout the EU, the EU’s first Anti-Tax Avoidance Directive and next year’s introduction of ATAD II will not make us less competitive. If companies pay more tax as a result of these measures, we will neutralise the increase. We reduced the tax rate two years ago from 21% to 18% in anticipation of BEPS. With the reduction this year we have front-loaded a tax reduction. We cannot continue to reduce taxes simply because companies protest, they will have to pay more, but we will monitor the situation. As for the PE industry, our coalition programme says we will improve the expatriates’ tax regime to help to attract PE and other players to Luxembourg.