Don’t slow down a sector with the wind in its sails
According to a report by Deloitte Luxembourg, the Trust & Corporate Services providers are confident about the future. At a press conference, the representatives of LIMSA, the Luxembourg International Management Services Association, underlined that this industry is one of the cornerstones of the national economy, attracting many international investors to Luxembourg.
Trust & Corporate Services providers play an important role in the growth of Luxembourg’s economy by offering various administrative services to their clients, like their accounting, financial and tax expertise. It is one of the driving forces of the financial sector, with an annual growth rate of 14%. The industry was worth 450 million euros at the end of 2011, and LIMSA members represent 56% of the sector, according to a recent Deloitte survey.
This report shows that the revenues generated by the sector come mainly from three types of services: domiciliation services and directorships, accounting and tax services, and corporate and legal support services. Pierre Masset, Tax Partner at Deloitte Luxembourg, presented this survey to the press. He said that the sector can be split into three categories: “You have corporate clients, institutional clients like private equity and real estate, and private clients like family offices. Between 2007 and 2011 we have seen growth in two categories; the funds sector grew by 18% and the corporate clients segment by 5%. The private clients segment remained relatively flat (1%) during that period of time”. Looking at the origin of clients in 2011, it is noteworthy that 67% of all clients served by LIMSA members are from the European Union and around 20% are from the United States.
Deloitte also asked LIMSA members for their outlook for the sector. They seem to be pretty bullish judging by the answers. The majority (53%) of those surveyed believe that their sector will grow over the next 12 months; consequently, around 60% of the companies believe that they will recruit staff over the same period of time. Another question asked was whether companies are thinking about relocating services to other countries. Pierre Masset from Deloitte explains, “The vast majority (76%) of companies surveyed aren’t relocating any services abroad. But 6 % said they would and 18% are still weighing that option”. Price pressure on lower-added-value services is one of the reasons why companies consider relocating to countries with a more competitive cost of labour.
Carlo Schlesser is chairman of LIMSA, the Luxembourg International Management Services Association. Founded in 2004, the aim of LIMSA ever since has been to promote the Trust & Corporate Services sector and represent its members’ interests. During the press conference, he reminded the journalists of the importance of this industry for the national economy. The sector, with an annual turnover of 450 million euros, employs around 2,400 people and the 43,000 investment companies that exist in Luxembourg generate 630 million euros in tax revenues.
This is quite impressive compared to banks, which generate a billion euros but employ 10 times more staff. Mr Schlesser said that the Luxembourg government has helped this sector grow and develop substantially. Nevertheless, he and the other board members of LIMSA are not happy with the government’s decision to more than double the tax for investment companies called SOPARFIs. He is not convinced that this tax hike will increase tax revenues, because companies might decide to relocate to other countries, for instance the Netherlands, one of Luxembourg’s major competitors in that area.
“The government must be aware of the fact that the environment in which we operate must be conducive, otherwise clients will easily relocate their companies. A private equity investor who has 20 or 30 investment companies will do the math and probably decide not to stay in Luxembourg. When the tax was introduced, it was decided that every Soparfi would have to pay 1500 euros. At the time, we had already warned the government that such a baseline tax does not exist in the surrounding countries. At the end of the day, we have accepted that tax, but we see no reason why it should more than double (104%) now.”
Carlo Schlesser has promised that LIMSA will lobby the government and members of the Parliament to rethink their decision to raise taxes, which would make life harder for people working in the Trust & Corporate Services industry. It would be an unfortunate development, LIMSA board members think, because there are opportunities for this industry, such as attracting family offices to Luxembourg, the law on intellectual property benefiting the Grand Duchy or attracting foreign investments from emerging markets. CW