Luxembourg's lawmakers have made a significant legislative move with the passage of Law No.8292 in a recent parliament session. This law marks a pivotal change in the tax obligations of multinational corporations and substantial national entities within the European Union (EU). Effective from January 2024, it mandates a minimum effective tax rate of 15 percent for these entities.

Impact on Major Global Companies

Starting next year, large international corporations, including industry giants like Amazon, ArcelorMittal, SES, and Ferrero, will face a new financial landscape. Specifically, companies with annual revenues exceeding €750 million are now required to adhere to this minimum corporate tax rate of 15 percent, as reported by SchengenVisaInfo.com. This development represents a significant shift in the fiscal responsibilities of these major players in the global market.

EU Directive and Global Tax Reform

The genesis of Luxembourg's law lies in a directive from the European Union, which itself is part of a broader initiative spearheaded by the Organization for Economic Cooperation and Development (OECD). This initiative, known as the Global Anti-Base Erosion Directive (GloBE Directive) or the EU Pillar Two Directive, aims to establish a universal minimum tax rate, set at no less than 15 percent. 

This directive, introduced on December 20, 2021, incorporates the OECD's global anti-base erosion rules (GloBE or Pillar Two rules) with necessary adjustments to align with EU legal frameworks. Luxembourg's adoption of this directive, marked by the publication of draft law No.8292 on August 4, aligns it with Ireland and the Netherlands, which have already enacted similar laws.

Ireland's Perspective and Luxembourg's Tax Authority Measures

Jennifer Carroll MacNeill, Ireland’s Finance Minister, expressed in the Luxembourg Times her hope that this legislation will shift the focus away from taxation debates. Additionally, Luxembourg's law empowers its tax authority to levy an additional tax, equivalent to a 15 percent rate, on subsidiaries of multinational corporations based in regions with an effective tax rate below 15 percent. 

This measure is intended to prevent a race to the bottom in corporate tax rates. Despite Luxembourg's standard corporate tax rate of 2.5 percent, many businesses have managed to pay significantly less.

Statement from Luxembourg's Finance Minister

Gilles Roth, Luxembourg's Finance Minister, emphasized the importance of this legislation for the country's reputation. He pointed out that failing to pass the law within the specified timeframe could have led to Luxembourg companies facing top-up taxes from other countries that have already implemented these rules.

The Legislative Process and Implications

Laurent Mosar, the lawmaker in charge of the bill, undertook a considerable task in converting the EU directive into national law. He presented a detailed document spanning over 180 pages. Former Finance Minister Yuriko Backes noted that this new global minimum corporate tax rate could impact over 7,500 companies registered in Luxembourg, signifying a substantial shift in the country's corporate tax landscape.