Tax planning for a post-Brexit world.
In its report on the “world’s worst corporate tax havens” last December, Oxfam rated Luxembourg in 7th place, behind Bermuda, Cayman Islands, the Netherlands, Switzerland, Singapore, and Ireland.
But the “City of London,” a largely autonomous square mile within London where the threads of global finance meet, was given a special mention: The number one “unexpected absence” from the list of the top 15 worst tax heavens. Oxfam’s report put it this way:
The UK’s City of London is at the centre of a web of Crown Dependencies and Overseas Territories, over which the UK wields both official and informal influence. The 14 Overseas Territories include the Cayman Islands, the British Virgin Islands and Bermuda, and Jersey is one of the UK’s three Crown Dependencies. As Jersey Finance, the official marketing arm of the Jersey offshore financial centre, puts it, “Jersey represents an extension of the City of London.”
There were plenty of reasons for financial outfits of all kinds to settle in the City of London. But now that Brexit will likely throw a monkey wrench into unfettered access to the European Union for these firms, they need to head to the continent. And tax haven Luxembourg appears to be a big beneficiary in a post-Brexit world.
Nicolas Mackel, the head of Luxembourg’s financial development agency Luxembourg for Finance told Reuters today that private equity firm Blackstone was among “three or four” major private equity firms that picked Luxembourg for their EU subsidiaries. But he wouldn’t name the other PE firms since they hadn’t yet made their decisions public.
One bank also decided to set up shop in Luxembourg, he said without naming names, while “10 to 20” are planning to expand their current operations in Luxembourg. He wouldn’t say which banks, but they all have operations in Luxembourg, such as J.P. Morgan Asset Management Luxembourg.
Four or five “big name” asset managers were also planning to set up operations in Luxembourg, Mackel said, following Prudential Investment Management and international asset manager M&G Investments in their decisions.
Until Brexit, companies in London can use “passporting” arrangements for selling their services in the continental EU. And they can hire people from other parts of the EU without any complications. These benefits might disappear with Brexit. Reuters:
Firms without regulated EU operations outside Britain say they are working on the assumption of a “hard Brexit,” where they will no longer be able to sell their services across the EU without an operation regulated by an EU member country.
AIG confirmed last week that it would establish its EU hub in Luxembourg.
Lloyd’s of London, the world’s largest specialty insurance market, will likely follow AIG to Luxembourg – rather than tax haven Ireland, as the Irish government had fervently hoped – according to “sources close to the matter,” the Irish Independent reported today.
“Three to four” insurance companies were close to deciding to set up operations in Luxembourg, including Lloyd’s of London, Mackel said.
Insurer Hiscox is still trying to decide between Luxembourg and Malta. Among UK-regulated ship insurers, top contenders include Luxembourg and Cyprus – and his country has been in talks with them, Mackel said.
And “five to 10” fintech companies have already picked Luxembourg, he said.
Most of the financial services firms who haven’t yet decided would likely do so “if not by the end of Q1 then at least by the end of H1,” he told Reuters.
Frankfurt, Paris, and Dublin are all vying to attract the financial Brexit refugees, those firms that need operations in the EU after Brexit. And they’ll likely offer special deals and concessions. But tiny Luxembourg, long lambasted within the EU as a tax haven that allows companies to dodge taxes in other EU member states, is looking like a hot property now.
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