No Luxembourg-based investment fund had taken advantage of reduced subscription tax rates for sustainable investing as of 20 January 2024.
“This figure may be surprising, but it must be interpreted in light of the regulatory context on the sustainable finance,” stated , the CSV finance minister.
Roth said European rules were “rapidly developing, with potentially significant changes to come, notably regarding the regulation of the publication of sustainability information in the financial services sector” required under the EU’s .
“In December 2022, the European Commission annunced a complete reassessment of the SFDR to determine its potential shortcomings, focusing on legal certainty, ease of use of the regulation and its capacity to play a role in the fight against greenwashing. An option suggested by the European Commission as part of two public consultations is to move towards a classification system for sustainable investment products,” Roth stated.
“The direction that the future revision of the SFDR needs to feed into national considerations on the most appropriate mechanisms to provide a reduced subscription tax rate on sustainable investments. It is therefore wise to wait for the update of the European framework before any potential adaptation of the current reduced subscription tax regime for sustainable investments.”
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The information was provided by Roth in a response a parliamentary from the Green party MP , on 18 April 2024.
In the grand duchy, the (taxe d’abonnement) is paid by investment vehicles based on their size.
Mutual funds (UCIs, or undertakings for collective investment) generally are levied an annual rate of 0.05% of their net assets, which is paid quarterly. Under a reform introduced in Luxembourg’s 2021 budget bill, that rate is lowered down in stages to 0.04%, 0.03%, 0.02% or 0.01% depending on the amount of the fund’s assets that are invested in “sustainable economic activities.” The 0.01% tarriff applies to funds that invest in at least 50% of its capital in assets that are classified as sustainable.
Roth pointed to a Luxembourg Sustainable Finance Initiative that found 67.3% of all Ucits fund assets in Luxembourg were invested in funds that used environmental, social or governance (ESG) investing criteria, as of June 2023. That was up from 54.6% in June 2022.
Roughly €2.9trn of Luxembourg fund assets were classified as , the two SFDR categories that indicate sustainability criteria or objectives, at the end of 2023, .
Applying the reduced subscription tax rate is highly “technical,” , director general of the Association of the Luxembourg Fund Industry, said during an interview on 29 April 2024.
The regime is “conditional on compliance” with the EU’s green , which is defined by multiple European texts. For fund firms in Luxembourg, “the way the tax circular was written meant setting up a very expensive labyrinthine to be able to benefit from this reduced taxation.
“So we need to review, I think, the regime to bring it into line with the simple things that are already done by players to fit into the category or not, rather than superimposing a second layer of very complex things. That’s why no one has used the regime: it’s too complicated compared to the gains it brings. There is a lack of proportionality between the effort required to be able to benefit from it without taking any risk--because obviously if we benefit from a tax measure, we do not want to suddenly expose ourselves to a risk that the tax administration, 3 years [from now], says that in fact we did our job badly,” said Weyland.
“This text was too complex; it must be simplified. I believe that the intention was good at the time: it was to put Luxembourg a little ahead with a tax incentive to have products that follow ESG criteria,” Weyland stated. But “for example, we could have linked it to articles 8 and 9, it would have been much simpler: if you are article 8, you have a rate of [X], if you are article 9, you have a rate of [Y]. That was done in the tax circular, unfortunately.”
With reporting by Guillaume Meyer
Updated, 29 April 2024 at 4:20pm, with comments from Serge Weyland at Alfi