Luxembourg, the small European jurisdiction that recently attracted unwelcome coverage as a haven for global multinationals, has seen its funds industry strenuously deny that tax is a key reason for why so many funds are located there.

Luxembourg, the small European jurisdiction that recently attracted unwelcome coverage as a haven for global multinationals, has seen its funds industry strenuously deny that tax is a key reason for why so many funds are located there.

In November, a group calling itself the International Consortium of Investigative Journalists leaked identities of 340 multinational companies that it claims use global transfer pricing and take advantage of Luxembourg tax rulings in an eight-year period after 2002. The ICIJ has also been involved in handling leaked data from financial centres such as the British Virgin Islands and Channel Islands. Among the firms named in the latest case were UBS, Deutsche Bank, and Credit Suisse. (For more on this story, see here.)

There has been controversy, for example – leading to changes in the law – about US companies such as Amazon, Verizon and FedEx domiciling some of their operations in Luxembourg for tax purposes so as to avoid paying US corporation tax, which can rise up to 35 per cent, above the average for OECD states of around 25 per cent. (More than 200 US companies are located in Luxembourg, according to CNBC.)

But mindful of how such negative publicity could affect other sectors, the Association of the Luxembourg Fund Industry said there were no specific tax benefits to domicile a fund in the country. The country is home to more than 3,900 regulated funds; assets under management by regulated Luxembourg investment funds have grown to reach over €3.0 trillion. It is home to a large number of pan-European UCITS funds, with its closest rival in this regard being Dublin.

ALFI said that Luxembourg-domiciled investment funds are subject to an annual subscription tax (or “taxe d’abonnement”) that is calculated on their assets under management. It says the “vast majority” of other countries do not apply any taxation at all on a fund level.

In the case of real estate or private equity funds, which represent only a 2few tens of billions” of the total AuM of Luxembourg funds, they need to use “special purpose vehicles” at the level of which tax rulings rulings may be granted. In most cases, such rulings are designed for tax-neutrality purposes, ALFI said.

“There is no tax advantage by domiciling an investment fund in Luxembourg. Fund managers and international investors select Luxembourg as a domicile because of the track record and unequalled expertise of the investment fund industry in Luxembourg,” Camille Thommes, ALFI director general said.

“Regulated investment funds are an important source of funding for the economy, i.e. for small- and medium, as well as for multinational companies, for infrastructure projects, environmental or social entrepreneurs. They are well-regulated financial products for investors around the world. There is no reason to draw such investment funds into the recent discussion on tax practices in Luxembourg,” Thommes said.