Luxembourg is the only country in the World whose Prime Minister is openly gay.
We are talking about one of the most tolerant, open minded, societies on the planet.
In fact, having a population of around 500,000 inhabitants, 40% of them are immigrants.
In other words, Luxembourg is the smallest country in European Union but the one with
the biggest share of immigrants.
Nonetheless, what made Luxembourg famous can be summarized in just one word: MONEY.
Yes, my dear friends at VisualPolitik, the Grand Duchy of Luxembourg is among the top
3 wealthiest countries on Earth.
Here, the minimum wage is around 2000 euros a month.
And this is the minimum wage.
Because the normal wage here is over 5000 euros a month.
For comparison, Luxembourgish people have a GDP per capita twice as big as that of Australians
or the Danes.
OK, OK, but now hold on just a second because there is a little trick in this figure!
You see… almost half of the workers in this country live outside of it.
Every day, around 160,000 commute to this country and then, they go back to their homes
in Germany, France or Belgium.
In other words, they create wealth in the country but they don’t live there.
This is why, when we divide Luxembourg’s GDP among their population, we get such an
enormous number.
But even with the statistical deviations, no one can deny that Luxembourg is kind of
a millionaire country.
And this explains why its capital, Luxembourg city, is among the cities with the highest
quality of life.
Many of you might think this can all be explained because Luxembourg is a fiscal haven.
But the truth is other countries like MALTA and CIPRUS have low taxes too and they are
not even half as rich as Luxembourg.
So the big question here is…
What does Luxembourg have that makes them so incredibly wealthy?
What did they do in this country in order to enjoy such a great quality of life?
Today we are going to answer this question.
But before we do, let’s take a look back at history.
KINGS OF STEEL
By the year 1815, the Grand Duchy of Luxembourg became an “independent” country
And I say “independent” because none of its neighbours really recognized this independence.
France and Prussia, what used to be Germany back then, fought for control of the Duchy
on several occasions.
In fact, despite their government’s desire for independence, the territory of Luxembourg
was owned by King William the 3rd of The Netherlands.
During these years, Luxembourg was far from being a wealthy country.
Most of its citizens survived thanks to agriculture and iron mining.
Back then, 1 out of 5 Luxembourgish people was emigrating to America.
Nonetheless, living between two rival countries like France and Prussia had its advantages
too.
You see, during this time, Germany didn’t exist as a country.
Instead, there were a lot of republics, kingdoms and duchies, united under a confederation.
If you want to know what a confederation is, do click on this video.
The truth is… all the German states traded among them.
They had basically created a special free trade zone, the so called ZOLLVEREIN.
So… in 1942, Luxembourg became a member of this ZOLLVEREIN.
Since then, history would never be the same.
As I said before, poor Luxembourg was based on two main industries: agriculture and iron
mining.
And remember, we were in the times of the industrial revolution.
Steel was needed for, basically, everything, from machines to buildings.
And Luxembourgish citizens were sitting on a pile of Iron.
But not only that!
We are talking about a tiny country, placed in the intersection between Germany, France
and Belgium.
In other words, it was the perfect point to have a railroad so they could send the iron
to all three countries.
Out of a sudden, Luxembourg became the zero kilometre to all those trade routes.
And also one of the biggest steel providers on the planet.
In fact, many of those New York skyscrapers were built with beams from this country.
This is why the biggest Steel companies are Luxembourgish.
Especially, the biggest of all of them, ARCELOR MITTAL, which you might have seen in the financial
newspapers.
In other words, in just a few decades, Luxembourg got to the same level as its neighbours.
But still it was not the economic behemoth it is today.
They needed a special sauce.
And that special sauce was this…
1929
This is the year when Luxembourg passed the Holding Law.
But wait just a minute!
Because now you might wonder…
What is a Corporate holding all about?
Well… let’s take COCA-COLA as an example.
On one hand, COCA-COLA is a beverage brand.
But on the other hand there is the COCA-COLA company.
This is a big conglomerate that includes other companies like FANTA, SCHWEPPES or COCA-COLA,
the beverage brand, itself.
OK, so this big conglomerate is called a Holding Corporation.
And the companies inside of it are called SUBSIDIARY companies.
These subsidiaries can be in different countries and are the guys who produce and distribute
the drinks.
However, the role of the Holding Company is, mainly, to manage the property of these other
subsidiary companies.
OK… so this 1929 law offered smoking good tax conditions to those holdings.
Basically, they paid around 1% tax.
These were the 30s.
Back then, there weren’t as many holdings as there are today.
Just remember that those were the years when COCA-COLA was starting to expand to other
markets.
But they were not the giant they are today.
In other words…
Luxembourg was growing…
but not much more than other countries.
LUXEMBOURG vs USA CHART 60-70s
Nonetheless, the 70s were the times where American companies conquered the European
and Asian markets that, finally, had more money to spend on consumer goods.
During these years, many of the big corporations we know today were born.
In other words…
a lot of holdings sprang up.
And their profit came from all around the planet.
So where did they go to set up their headquarters?
Well… since they could choose, they went to the places with the best fiscal conditions.
And Luxembourg had everything they wanted and more.
You see, by the 60s and the 70s, the country already had a big banking industry.
The best lawyers, accountants and economists were living there, ready to help those big
companies in order to take the biggest advantage of those business-friendly laws.
And this is how this little country got into their SILVER decade.
LUXEMBOURG vs USA CHART 80-80s
Yep, believe what you see... the economy of Luxembourg became two times bigger in less
than 6 years.
Compared to this, China or Singapore’s growth rate is a joke.
And yes, you heard that right…
I said the ‘SILVER DECADE’ because all of this growth was nothing compared with what
came after.
Think about it, we are already talking about the 2000s.
The time of the online business boom.
These brand new corporate juggernauts operated all over the world, had dozens of subsidiary
companies in every country and they were not based in any specific territory because they
sold everywhere.
In other words…
the technological companies were made to love Luxembourg.
So… if you thought a country that was already astoundingly rich, couldn’t grow more…
well… think twice.
LUXEMBOURG vs USA CHART 2000s
Amazing, isn’t it?
I don’t know if you noticed this but... in just 5 years, Luxembourg’s GDP per capita
went from 50,000 USD, which is already a lot, to over 100,000 USD.
When you live in a country with a GDP per capita of over 100,000 USD…
well… you can fill your swimming pool with Champaign.
*HERE YOU CAN PUT ANY FUNNY EXAGERATION TO EXPRESS HOW RICH YOU ARE*
In fact, the AUDI a3 is the 3rd best selling car in Luxembourg.
And yes, I know what you are thinking!
You think that this country has made its fortune by helping companies avoid paying their taxes,
right?
Well… the answer is a little bit more complex than this.
You see, the fact that a Holding corporation is located in Luxembourg does not mean its
subsidiary companies don’t pay taxes elsewhere.
For instance, AMAZON has its headquarters in Luxembourg.
Nonetheless, its British subsidiary, that is, the company that sells products and manages
logistics in this country, has to pay their taxes in the UK.
Or… at least, this is the theory.
In fact, the reality is way different…
LUXLEAKS
Let’s get back to the AMAZON example.
As we said, the profits of its British subsidiary are taxed in UK, right?
Well… but what happens if they have no profits whatsoever?
Imagine that, right after they pay taxes, Amazon UK gets a big loan: a big loan with
a really high interest rate, so high that the company takes losses.
And who lends that money?
Exactly!
AMAZON HOLDINGS in Luxembourg.
This way, the subsidiary companies have almost no profits.
One way or another, they manage to send their Money to the Luxembourgish branch.
And, as we said before, in Luxembourg, taxes are really low for companies.
Of course, all of this is perfectly legal.
But in 2009, during the big financial crisis, the American government realized this huge
amount of money they were losing with all of these big companies moving overseas.
Since then, other governments have followed Obama’s steps.
Don’t forget Luxembourg is one of the European Union’s founding members.
This means the other club members were angry and willing to lay on a lot of political pressure.
But the biggest crisis in this country came in the year 2014.
This was the time when a group of accountants released lots of private data from big corporations.
Thanks to the so-called LUX LEAKS, we could all see those tax evasion strategies made
by thousands of companies.
Do you remember what I told you about loans between different subsidiary companies within
a holding?
Well… here is another way of improving the deal.
You see…
all these big companies hire big consulting firms so they can help them with their accounting.
Consulting firms like PRICE WATERHOUSE COOPERS with a big customer portfolio in Luxembourg.
They had enough power to sit down with the, back then, Prime Minister, Jean-Claude JUNCKER
and arrange a special tax deal.
“Juncker in spotlight after Luxembourg tax revelations”
The leaked documents demonstrate tax arrangements negotiated by PricewaterhouseCoopers
As you can imagine, the release of the LuxLeaks is a total game-changer.
In fact, this year, 2017, Luxembourg has passed a brand new fiscal reform.
And, probably, many of these arrangements will have to change.
But wait a minute because this does not mean Luxembourg is going to stop being rich!
In fact, the opposite is true.
Actually, despite these political turbulences, the country grew at a 4.2% rate last year.
This is way faster than almost any other country in Europe.
Having so much savings, Luxembourg has invested in many other industries.
Of course, they have the steel, the banks and…
THE SPACE!
“Luxembourg's Bet On Space Industry Shows Early Signs Of Success”
You heard that right.
In fact, Luxembourg and the United States are the first countries to pass laws regulating
Space mining.
And this tiny country is expected to become the Silicon Valley of the Aerospace industry.
This explains, partly, some of the details of this 2017 fiscal reform!
Of course, the Government of Luxembourg doesn’t want to keep helping big corporations avoid
taxes.
At least, this is what they say officially.
Instead, they have reduced taxes for smaller companies, and are actively trying to improve
conditions in order to encourage more tech startups.But… we will talk about this in
another video.
Now the question for you is…
Do you think we will see another time of skyrocketing growth in Luxembourg’s economy?
Will this country become the World’s leader in the Aerospace industry?
Please, leave your answer in the comment section below.
Meanwhile, if you want to know more about another super wealthy country, click here
to check out this video about QATAR.
And also visit RECONSIDER MEDIA.COM, the podcast that provided the vocals in this video that
are not mine.
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