Paperjam: The subscription tax exemption is only a part of the problem, isn’t it? Does the double tax treaty between Luxembourg and the United States play the same role as in Ireland?
: “Ireland’s zero tax rate on ETF subscriptions is not the only factor in its dominance. In fact, its 1996 tax treaty with the US is a significant advantage that makes competition very difficult. This treaty means that Irish-domiciled equity ETFs with exposure to US equities pay only a 15% withholding tax rate on dividends, compared with 30% for ETFs based in Luxembourg or elsewhere in Europe. While the exemption from subscription tax for actively managed ETFs will not fully close the gap between Luxembourg and Ireland, it is undoubtedly a step in the right direction and will help to strengthen the competitiveness of the Luxembourg financial centre.”
Do we know what the exposure of Irish ETFs to US products is? Do we know the share of these products compared to the rest of the market?
“In June 2024, the assets under management (AUM) of ETFs domiciled in Ireland with a geographic focus on the US amounted to €549.9bn. This represents 40.9% of the total AUM of Irish-domiciled ETFs of approximately €1,343bn. This significant proportion underlines the strong link between the Irish ETF market and the US economy. It is important to note that this figure specifically reflects ETFs focused on the US market, not overall exposure to US assets, meaning that ETFs with a European or other geographical focus may still have allocations to US assets.”
This is a good first step, but what should Luxembourg do to go further?
“All stakeholders--be it the government, public-private associations, or the financial services sector as a whole--should continue to highlight the significant diversity of skills and expertise prevalent in Luxembourg’s asset management industry. By showcasing its strong reputation and expertise in fund management, Luxembourg can attract more global asset managers looking for a robust and knowledgeable environment from which they can launch their funds and conduct their operations.”
“Building stronger partnerships with banks, custodians, and other financial institutions can provide a more integrated and supportive environment for ETF managers. This collaborative ecosystem can help in addressing operational challenges and improving service offerings. In addition, attracting expertise from abroad to the financial centre is a must. The new expatriate regime proposed by the government, which provides a significant exemption on gross annual remuneration and seeks to attract highly-skilled talent, is another step in the right direction which will help solve some of the skills-related challenges we identified early last year in our 2023 CEO Survey.”
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Do you think the Luxembourg ecosystem has the same skills/human resources as the Irish one?
“Absolutely, the Luxembourg ecosystem indeed hosts comparable skills and human resources to those found in Ireland. Luxembourg has a long-standing reputation as a prime domicile for ETFs, supported by progressive policies like the abolition of the subscription tax on passive ETFs passed over a decade ago. While Ireland has traditionally seen a concentration of US players within its ETF sector, Luxembourg stands out for the diverse array of asset managers active in the country. This diversity highlights the depth and breadth of expertise present in Luxembourg.”
We should not rest on our laurels, and much work remains to be done
“However, competition with other financial centres--be it Ireland or other leading centres in Europe and the world--is intense. We should not rest on our laurels, and much work remains to be done if we are to make sure that the Luxembourg financial centre not only maintains its competitiveness but also thrives amidst the challenging times ahead.”