Are negative rates positive? (October monthly) By Vincent JUVYNS, JP Morgan Asset Management Strategist The question may seem surreal, but it is nonetheless very topical since the European Central Bank (ECB) has just announced a new drop of 0.1% of its deposit rate at -0.5%. This decision will undoubtedly not have been taken lightly by Mario Draghi who, a few weeks from passing the torch to Christine Lagarde, would certainly have preferred to be able to initiate the normalization of the ECB's monetary policy, as a sign of mission accomplished. Instead, in the face of the significant cyclical weakening that has dragon the euro area since the start of the year, due to the combined impact of the trade war and political uncertainties on our exports and our industry, the ECB s is seen compelled to prolong and even intensify its efforts to revive growth and inflation. Thus, the negative rates which were initially intended to be only a temporary monetary "electroshock" to relaunch inflation and growth, now take on an increasingly structural character, to the great displeasure of their detractors, following the example banks. The latter have no choice but to place their excess liquidity, in particular from savers' deposits, with the ECB where it is subject to a negative rate, which negatively affects their profitability and performance. stock market. Negative rates are therefore far from unanimous and while it is generally accepted that they have helped to keep the euro competitive with other currencies, their effects on the economy are still the subject of debate. many debates. Some believing that they are doing more harm than good while others are convinced that negative rates are a good response to the negative spiral that Dragon the economy because “less by less” is positive… In Belgium , in any case, the prospect of maintaining negative rates is rather positive, particularly for our public finances, since this should continue to lower the cost of servicing our debt. The National Bank thus estimates that the interest burden on our debt has fallen from 3.3% of GDP in 2014 to 2.3% of GDP today and could fall further in the years to come. In this context, even with a government in current affairs, our country is regaining a certain capacity for budgetary stimulation, which is positive. For Belgian savers, on the other hand, the situation could become more complicated, but this may be a blessing in disguise. Negative rates have so far not been applicable for the general public, since Belgian law imposes a minimum return of 0.11% on savings, but if the nominal return remains positive, the real return of the savings, that is to say adjusted for inflation, has been negative for several years. This situation has paradoxically led Belgian savers to save ever more, since the total amount of savings accounts in Belgium has reached the record sum of 278.4 billion euros(1). This situation is penalizing in many respects. For savers first of all, since they are seeing their assets erode inexorably. Then for the banks, because they now subsidize these savings, and finally, for the economy as a whole, since these savings are not invested in productive projects. Thus, the ECB's decision to maintain negative rates for an indefinite period must therefore alert savers to the fact that it is high time to activate their savings and accept measured risk-taking, to avoid seeing their assets be eroded either by inflation or by negative rates. Investing in the financial markets is never easy, however, and it's never the right time because there are always a number of anxiety-provoking elements that lead us to postpone this decision. However, if we take stock of the past 10 years, which have been anxiety-provoking in many respects, it is clear that diversified exposure to the financial markets would have enabled savers to garner significant growth in their wealth. Indeed, a diversified fund(2), as offered by most Belgian banks, would have produced a return of 5.8% per year for a volatility of 11.7%. It is certainly difficult to say whether these performances will be repeated in the future, but one thing is certain: negative rates will continue to support the price of financial assets. In conclusion, although negative rates are still the subject of much debate, they are unquestionably a blessing for our public finances since they restore the ability of our governments to invest to support the economy. For savers, on the other hand, "less for less" will only be positive if they accept measured risk-taking and it is therefore high time that they make an appointment with their wealth advisor to find a suitable solution for their savings. . 1) June 2019 2) Source: Barclays, Bloomberg, FTSE, JP Morgan Economic Research, MSCI, Refinitiv Datastream, JP Morgan Asset Management. Annualized performance covers 2008 to 2018. “Vol.” denotes the standard deviation of annual performance. Oblig. State: Bloomberg Barclays Global Aggregate Government Treasuries; High yield bonds: Bloomberg Barclays Global High Yield; Emerging debt: JP Morgan EMBI Global; Bonds IG: Bloomberg Barclays Global Aggregate – Corporates; Commodities: Bloomberg Commodity; REIT: FTSE NAREIT All REITS; MD stocks: MSCI World; EM equities: MSCI EM; Hedge funds: HFRI Global Hedge Fund Index; Cash: JP Morgan Cash Index EUR (3M). Portfolio assumption (for illustrative purposes only and not to be taken as a recommendation): 30% in dev. ; 10% in emerging market equities; 15% in IG bonds; 12.5% in government bonds; 7.5% in high yield bonds; 5% in emerging debt; 5% in raw materials; 5% in cash; 5% in REITs and 5% in hedge funds. All returns represent total performance in EUR, and are unhedged. Past performance is not a reliable indicator of current and future results. Guide to markets - Europe. Data as of June 30, 2019. The European Central Bank faces new challenges (October monthly) By David SEBAN-JEANTET, Chief Investment Officer, Societe Generale Private Wealth Management The European Central Bank (ECB), faced with a sharp drop in inflation expectations and the prospect of a slowdown in the economy announced new monetary easing measures. Before handing over the baton to Christine Lagarde in early November, Mario Draghi unveiled a range of measures aimed at stimulating activity and reviving inflation expectations. The announcement of a new asset buy-back program caused a lot of excitement even within the monetary policy committee. The banking sector should benefit from the significant progress represented by the implementation of a so-called tiering system. The euro zone: a banking economy In Europe, commercial banks finance the economy directly by keeping a majority of their liabilities on the balance sheet and by having less recourse to securitization operations than their counterparts in the United States. The ECB knows to what extent the banking sector is therefore an essential transmission belt for its monetary policy. Faced with a structural decline in their profitability caused in particular by low interest rates, banks could give in to the temptation to restrict the supply of credit so as not to risk deteriorating their solvency ratio. This situation could have evolved into a credit crunch, ie a significant drop in the granting of credit in the economy. In this context, the new tiering system is welcome since it will allow banks to offset part of the negative interest rates on their results. Among the measures enacted by the ECB on September 12 was the reduction of an additional 0.10% of the ECB deposit rate, bringing it to -0.50%. The European banking system, which produces nearly 2,000 billion euros in excess reserves, should then suffer an annual cost of around 10 billion euros or about 15% of its net results. The proposed step measure will make it possible not to apply this negative deposit rate within the limit of six times the level of reserve requirements. It is thus almost 40% of the excess reserves of the sector which are exempted from the penalty of 0.50%. Similar systems have already been implemented by the Bank of Japan and the Swiss National Bank with some effectiveness. The evolution of the slope of the yield curve and inflation expectations over the coming weeks will also be decisive for the future profitability of the banking sector. But the revival of inflation expectations requires a rebound in activity, which is currently suffering from weak demand in the manufacturing industry and the decline in investment. This new phase of monetary easing must therefore imperatively be combined with a revival of activity in order to bear full fruit. Monetary easing and budgetary stimulus Over the past few years, the main European states have entered, willy-nilly, into a period of budgetary consolidation in order to stabilize the public debt; monetary policy was then the only one trying to stimulate a sluggish economy. Today, however, when 65% of European bond markets are in negative rates, the fall in the debt burden frees States from some of these constraints. For highly indebted countries, the fall in the cost of debt can thus generate significant room for manoeuvre. While a few support measures have been announced, one would expect a more structured and coordinated approach from the Member States of the European Union in order to support the activity which is suffering from multiple uncertainties. More opportunistically, one can also imagine that certain States wish to finance infrastructure projects at negative rates. Discussions in this direction have also taken place in Germany, which could thus accelerate its energy transition towards an economy with a significantly reduced carbon footprint. We can see how monetary policy objectives have changed since the Great Recession. The main objective of the ECB today is to avoid an excessive drop in inflation expectations, the harmful effects of which on the confidence of agents and investment could have a lasting effect on the economy. The concern of central bankers over a sharp and lasting drop in inflation expectations is such that some are considering resorting to “helicopter money”. The idea would then be for the Central Bank to distribute money directly to economic agents in order to stimulate demand and revive inflation expectations. In the same way, modern monetary theory brings Keynesian theses up to date. These theses, often utopian, nevertheless demonstrate that while the independence so dear to central bankers remains in order, we are moving towards greater coordination of budgetary and monetary policies. Moreover, faced with multiple challenges and a sluggish economy, central bankers must continually adapt their tools to effectively counter headwinds. International talents, assets of Luxembourg's competitiveness (World Economic Forum - "Global Competitiveness Report (GCR)" 2019-2020) (monthly October) Economy particularly open to the world and located at the heart of European free markets (people, goods , services and capital), Luxembourg is positioned, in this year 2019, in 18th place in the world ranking of competitiveness of the World Economic Forum (WEF). It thus gains a place compared to the previous edition, retaining overall the weak points and above all the strong points which make it one of the most productive economies in the world. Among its assets is the strong presence of a foreign labor force, often qualified, even highly qualified, which represents 73% of the labor market and places Luxembourg, according to business leaders, as one of the countries where workforce is the most competent. International talent is thus one of the driving forces behind a competitive international financial centre, a strong entrepreneurial culture and a growing innovation ecosystem. The report "The Global Competitiveness Report 2019-2020" (GCR) focuses this year on the difficult union, but no less possible and necessary, between growth, inclusiveness and sustainability. If the GCR ranking is dominated by Singapore (1st), the United States (2nd) and Hong Kong (3rd), it is more towards the countries of northern Europe, Sweden, Denmark and Finland in particular, that we must turn to find examples of visionary policies capable of reconciling these three objectives. These countries are now more innovative than Luxembourg and have been able to adopt new technologies more quickly. Denmark has also defined a much more flexible labor market framework. The WEF ranking measures the competitiveness of 141 countries using public statistical indicators from participating States and international institutions, and from the results of the "Executive Opinion Survey", a survey conducted in Luxembourg under the aegis of of the Chamber of Commerce, between February and April 2019 with economic decision-makers and business leaders. According to these results, Luxembourg is ranked 18th in the world for the most competitive economies in 2019. The ranking shows some progress, while Luxembourg has oscillated between 19th and 25th place over the past ten years. This improvement will need to be confirmed over time, with the determinants of competitiveness bearing fruit over the long term, while the ranking may change positively simply because of favorable economic conditions. Luxembourg is 10th at the European level. The WEF ranking indicates that the institutions are moving in the direction of an environment conducive to competitiveness. Business leaders see the public sector as efficient, transparent and, overall, forward-looking. The performance of the administration is more questioned with regard to entrepreneurship, with for example an inefficient bankruptcy law. Luxembourg is also one of the solid countries at the macroeconomic level. It has modern infrastructure, particularly in terms of energy and the environment, but is poorly ranked on certain indicators related to transport. The efficiency of these infrastructures is a major challenge due to the strong demographic growth in Luxembourg, in the ambitious context of the “Third Industrial Revolution” strategy. Luxembourg's results tend to improve in the area of skills and, therefore, in the human capital aspect. This aspect is increasingly important at a time when changes in production and consumption patterns are accelerating under the impetus of digitalization. Business leaders value the skills of the workforce and the training system. If international talents are today a great strength of the Luxembourg economy, the difficulties in meeting the growing labor needs for companies, by training or attracting new talents, tend to worsen. year after year. At the same time, Luxembourg shows overall good performance on the various markets (goods and services, labor, financial sector). The adaptability of talent to changes in the economic world requires a well-functioning labor market. The Luxembourg labor market is paradoxical, between efficiency in certain areas, in particular the administrative framework for recruiting abroad, and rigidity on the question of wages. Open to the world and generally favoring trade in goods, services and finance, the Luxembourg regulatory framework still suffers from excessively complex customs tariffs. The diversity of the workforce, both in public research and in the private sector, and international partnerships are also assets of Luxembourg's innovative ecosystem. An essential vector of the evolution of productivity, national innovation still relies heavily on patent filings. Research indicators are progressing slowly, while research and development expenditure as a percentage of GDP does not position Luxembourg among the most innovation-oriented economies. International indicators and business leaders tend to praise the level of development of certain determinants of competitiveness in Luxembourg: stability and transparency of public policies, orientation towards the future, quality of infrastructure, workforce currently present. While the dual challenge of economies for the coming years is to succeed in the technological transition of the economy and society in general, and to achieve the union of economic growth, social inclusiveness and sustainability environment, Luxembourg must overcome a third challenge, that of managing its growth. The difficulties linked to this challenge are already clearly visible, whether for transport infrastructure or the recruitment of new talent. Managing growth is nevertheless essential, because without growth, there can be no successful technological transition in Luxembourg and even less improvement in the standard of living of the population. Source: World Economic Forum and Chamber of Commerce The pan-European pension product (PEPP), a new opportunity for management companies? (monthly October) The Parliament and the Council of the European Union adopted on June 20, 2019 European Regulation 2019/1238 relating to the pan-European individual retirement savings product (PEPP). The first PEPPs will see the light of day at the end of 2021 at the earliest, the PEPP regulation only being applicable 12 months after the publication of its level 2 implementing measures. PEPP? In the words of the preamble to the regulation, it is a question of 'creating an individual retirement savings product, the nature of which will be that of long-term retirement savings and which will take into account environmental, social and governance referred to in the Principles for Responsible Investment (ESG) […], will be simple, secure, transparent, consumer-friendly, reasonably priced and transferable across the Union, and will complement existing regimes in Member States .”

The PEPP, an ambitious dual objective The ambition of the PEPP product is no less than that of the pan-European product for undertakings for collective investment in transferable securities (UCITS) created in the mid-1980s. The PEPP is an additional tool for in the face of the demographic challenge posed by an aging European population, by offering all European citizens a complementary, transferable and harmonized retirement savings product. With the PEPP, savers will be able to continue saving with the same product, even if they change residence within the European Union. The offers of complementary national retirement savings products are very heterogeneous, which does not promote the transferability of products between the different Member States, at a time of increased worker mobility. This partly explains the low rate of subscription to supplementary retirement savings – currently only 27% of Europeans aged between 25 and 59 have subscribed to a product of this type. If the PEPP has the expected success with the general public, some estimate that the private retirement savings market could reach between 2,100 and 3,500 billion euros in 2030, against 700 million euros in 2017. In addition, this new product finance is part of the Capital Markets Union project. Its objective is to reallocate savings, too often dormant, of Europeans towards long-term investments, aimed at financing the real economy, taking into account ESG factors. New opportunities for management companies The PEPP regulation represents a new opportunity for European asset managers. Indeed, alternative investment fund managers, UCITS management companies and MiFID wealth managers (collectively, “management companies”), are authorized to set up, manage and distribute a PEPP. This constitutes a small revolution because the design of retirement savings products was historically reserved for credit establishments, insurance companies and occupational retirement institutions. The PEPP opens a new single market for retirement savings to management companies. In order to fully seize this new opportunity, management companies will however have to comply with certain constraints imposed by the PEPP regulatory framework. The PEPP, an incomplete harmonization for a fragmented product? The PEPP regulation must be supplemented by level 2 and level 3 measures. It is therefore difficult to know today what the final form of the PEPP will be and whether it will have the expected success with management companies. The PEPP regulation must also be supplemented by the Member States. They remain competent to regulate the accumulation and payment phases of the PEPP contract as well as to determine the conditions that the PEPP must respect in order to benefit from any national tax advantages. These specific rules, specific to each Member State, will be reflected in a national “sub-account”. Member States may, for example, favor certain forms of payment of the capital of the PEPP contract (annuity, capital, withdrawal or a combination of these different forms) or set quantitative limits on the payment of a single capital to the PEPP saver. These national measures could favor some PEPP providers to the detriment of others. For example, tax measures encouraging PEPP savers to opt for the payment of an annuity favor insurance companies which have more expertise than management companies in setting up and managing products based on a actuarial model. Finally, PEPP providers and distributors have an obligation to advise at the time of investment and an obligation to provide detailed information to savers throughout the duration of the PEPP contract. Suppliers (such as banks and insurance companies) that have a distribution network are arguably better equipped to meet these requirements than smaller independent players. The PEPP regulation provides that the costs and fees associated with certain PEPPs (known as “basic”) are limited to 1% of the capital invested per year. Tier 2 metrics will determine the costs and fees that are taken into account in calculating this 1% maximum. Conclusion The PEPP is an ambitious product whose success with management companies will depend on level 2 measures as well as national legal regimes. Excessive fragmentation of national regimes could discourage certain management companies, and in particular those of modest size, from investing in this market. Indeed, in order to be able to offer a PEPP in several Member States, a PEPP provider will have to create different "sub-accounts" reflecting the specific requirements of the Member States concerned. The implementation of these national “sub-accounts” and the day-to-day management of the constraints attached to them could generate significant legal and operational costs. If a broad definition of the costs and fees concerned by the annual maximum of 1% is adopted, the PEPP could in practice be reserved for large players, able to achieve economies of scale and thus reach a sufficient profitability threshold despite a margin reduced fee. Subject to the main constraints mentioned below, the development potential of the PEPP is considerable. Luxembourg, as the undisputed leader of funds in Europe, is ideally positioned to hold its own and establish itself as the jurisdiction of choice for the establishment of PEPPs. The PEPP is indeed, by nature, a cross-border product, the PEPP regulation providing that each PEPP must eventually have at least two national sub-accounts to ensure sufficient transferability of the PEPP. Paul-Eric LIFRANGE, Associate Jean-Christian SIX, Partner, Allen & Overy Luxembourg The Benelux countries in the fight against tax evasion (monthly October) Under the Luxembourg Presidency of the Benelux, the Luxembourg Minister of Finance, Pierre Gramegna, the Minister Dutch finance minister, Wopke Hoekstra, and the Belgian finance minister, Alexander De Croo, signed a Benelux agreement on the sidelines of the European Ecofin Council to strengthen their cooperation in the common fight against tax evasion. Attention will be paid more to digitization in order to combat new forms of fraud and anticipate new phenomena in this field. Pierre Gramegna comments: “Over the decades, the Benelux Union, which brings together three of the founding members of the European Union, has proven itself as an innovative and pioneering laboratory in Europe. This new agreement, signed under the Luxembourg presidency, once again shows the continued commitment of the three countries to cross-border cooperation, and is a strong signal of the desire to move forward in the common fight against tax fraud.” Since 2001, the three Benelux countries have worked closely together in the area of taxation and the fight against cross-border tax evasion. This cooperation has resulted in significant financial results and has served as an example for the fight against fraud at European level on several occasions. Thus, a system (Transaction Network Analysis) which makes it possible to detect cross-border VAT fraud in an automated way was developed by Benelux and then taken over by Europe. With this agreement, the three ministers go even further by participating together in digital projects that will allow the automatic exchange of information between countries. In the field, joint studies will be carried out in order to detect new fraud phenomena. The three countries will further share their experiences in tax matters and together closely follow European developments in this area. At least once a year, the tax administrations of the three countries will hold high-level strategic consultations in order to discuss the progress made and provide impetus. Through this agreement, the three ministers also confirm their desire to continue to play a pioneering role vis-à-vis the European Union thanks to their enhanced tax cooperation. Source: Ministry of Finance The distribution model on French soil under pressure (monthly October) By Eric CENTI, tax specialist partner and Financial services tax practice Leader & Carole HEIN, tax director, Deloitte Luxembourg In March 2018, an overhaul of the text of the tax treaty between Luxembourg and France has been made. The new text will enter into force in January 2020 following its ratification by the Parliaments of the two States. While France quickly completed its ratification process, Luxembourg took longer, but the bill (bill no. 7390) ratifying the new text was finally approved last July. Several provisions of this tax treaty have been fundamentally modified by drawing heavily on the proposals of the OECD following its BEPS(1) project. While this amendment immediately led to numerous comments, a substantial modification to the agreement went relatively unnoticed at first, which is all the more surprising given its potential impact for market players in all industries. Indeed, the broadening of the definition of the concept of permanent establishment will force Luxembourg financial players to question their current operational model and perhaps adapt it to this new tax framework. The agreement signed between Luxembourg and France is essentially an old model OECD agreement since it dates from 1958. The modifications made subsequently mainly concerned reformulations aimed at avoiding differences in interpretation, particularly in terms of taxation. real estate (eg a few years ago many investors were able to avoid any taxation of capital gains on French buildings held by a Luxembourg SCI due to a divergent interpretation of the agreement by the two States). The new text signed in March 2018 has a very different vocation. Indeed, not content with substantially modifying the rules aimed at avoiding double taxation(2), this new text is the first treaty signed by Luxembourg in the "post-BEPS" era, i.e. taking take into account the recent recommendations of the OECD regarding the prevention of the erosion of the taxable base and profit shifting. A substantial amendment to the agreement, however, had surprisingly(3) gone unnoticed(4). Indeed, a new provision broadens the definition of the notion of permanent establishment, a key criterion for determining the taxable presence abroad of actors with cross-border activity. The recognition of a permanent establishment in another State is far from being fiscally neutral. Indeed, the profits generated by this permanent establishment, which, it should be remembered, is a purely tax concept, are subject to corporation tax of the State in which this permanent establishment is located at the locally applicable rate in this State. (up to 33.33% for France vs 24.94% for Luxembourg-city). The criteria for recognition of a permanent establishment are therefore key for Luxembourg players with activities in France. Until now, these criteria were rather traditional since they consist of a fixed place of business through which a company exercises all or part of its activity in another State and/or a person who has, and usually exercises the power to conclude contracts in the name of the business in that other State. This is aimed in particular at branches and the freedom of establishment within the meaning of the Treaty on the Functioning of the European Union (TFEU). Due to the freedom to provide services ("LPS"), many players are present in several countries via agents who are separated into two categories, (i) dependent agents who are typically sales representatives of the Luxembourg company and who travel to France to sell banking, insurance or investment fund products of the Luxembourg entity and (ii) independent agents (brokers) who work on their own account for various entities by helping them to market their products. If the first type of agent was likely to constitute a taxable presence in France under certain conditions, the second was rather well protected. However, there is a downside for the world of insurance because a French permanent establishment can be recognized for a Luxembourg insurance company which collects, through a representative other than an independent agent, premiums on French territory. or insures risks on French territory. The definition of permanent establishment is greatly broadened with the new convention since the only formal concept of the signing of a contract abroad is replaced by a broader concept based on an economic approach corroborated by a bundle of indices linked to the actual roles and responsibilities of Luxembourg-based sales representatives/employees/agents who, for example, distribute banking products, investment funds or life insurance contracts in France via the LPS. In addition, certain activities considered today as preparatory or auxiliary and therefore not constituting a permanent establishment will no longer necessarily be so tomorrow. As a result, a broker who acts in a country exclusively or almost exclusively on behalf of only one other party will no longer be allowed to use the term “independent agent” previously excluded from the definition of a permanent establishment. If today a salesperson from a Luxembourg company supposed to carry out a prospecting activity in France, corroborated by a contract signed in Luxembourg, does not constitute a permanent establishment in France, it could be tomorrow if we consider that economic - ment, this commercial usually plays a main role and in a routine way in the conclusion of a contract without significant modification made by the Luxembourg company. The definition of dependent agent therefore has a much broader spectrum which significantly increases the risk of recognition of a permanent establishment. The independent agent, who under certain conditions does not constitute a permanent establishment, on the contrary sees his activity much more controlled in order to test his effective independence. The difficulty is increased by the fact that the control of the French tax authorities should no longer be limited to a purely formal framework such as the review of contracts to ensure that they are signed in Luxembourg or a review of contracts signed with a broker to confirm independent agent status. Recognition of the notion of permanent establishment rests more on an economic basis than on a purely formal basis according to the already known principle of “substance over form”. France is a key geographical area for the distribution of Luxembourg products. Therefore, in order to be prepared, Luxembourg players must react now whether they are insurers, bankers or asset managers. First, by precisely analyzing their current distribution model on French soil in order to determine whether there is a gap between this operational model and the requirements formulated by the new agreement. To do this, a review of the distribution channels in place must be carried out, including a review of the employment contracts of the salespeople employed by the Luxembourg company, particularly with regard to their roles and responsibilities in canvassing French customers; a factual review of these roles and responsibilities (number of trips (and their duration) in France via expense reports, for example, the number of canvassing cards, the communication of sales representatives vis-à-vis the outside world (the networks may turn out to be false friends)); a review of procedures for accepting new French customers; a review of the contracts signed with these new customers; a review of the broker's roles and responsibilities if the brokerage system is predominant... Following this analysis, the Luxembourg company will be able to assess the risk and the cost of this risk linked to taxation in France of part of the profits at a higher rate (as a reminder: up to 33.33% in France against 24.94% in Luxembourg City). This exercise will reveal the potential weaknesses of the transfer pricing policies implemented by the Luxembourg company. Indeed, if there is a taxable profit in France, you still need to know how to determine it properly! If the operational model is close to the requirements of the new treaty, a few corrections to it may be sufficient. Otherwise, it will be necessary to ask how a tax presence in France can be organized efficiently via, for example, the opening of a branch. Even if it means being fiscally present in France, you might as well let the regulator and customers know it transparently! Once again, transfer pricing policies and the related documentation have a place that should not be overlooked, in order to determine the level of taxable profit in France and to be able to justify it to the tax authorities both on the methodology and on the amount. This review and especially the implementation of corrective measures is not an easy task and let's not forget that the new rules apply on January 1, 2020, i.e. in just under 3 months... 1) Base Erosion and Profit Shifting 2) France is moving from an exemption system to a tax credit system. As a result, there is a risk of questioning the impacts of Luxembourg tax optimizations for French residents. 3) The fact that the new definition of a permanent establishment is not taken into account is surprising for two reasons. Firstly with regard to its impact for local players. Secondly, because Luxembourg did not wish to follow this recommendation initially mentioned in article 12 of the MLI (instrument aiming to amend and interpret various notions of already existing conventions). It should be noted that its position is different in the context of isolated renegotiations. In any case, this is what we note in the context of the agreement between Luxembourg and France. 4) The first comments were not directed towards these measures enacted by the BEPS project because they were overshadowed by the reactions of the real estate world on the one hand (linked to the new taxation rules for real estate investment funds) and cross-border workers French on the other hand (linked to the sharp reduction in the balance of days (183 days to 29 days) allowing conventional protection and therefore an exemption in France from their wages). The austerity tide has turned (October monthly) By Philippe LEDENT, Senior Economist, ING Belgium-Luxembourg The debate on austerity has caused much ink to flow over the past ten years. It has been decried and often presented as a submission to creditors, or to Germany, insofar as it was the price to pay for the involvement of this country in the rescue mechanisms for countries in difficulty. All this gave the impression that there was a choice: that of austerity or that of recovery. But to tell the truth, the choice was very limited, given the deterioration of public finances in most European countries and the state of the financial markets at the time. It should indeed be remembered that the goal of austerity was to put public finances back on track, but it was more broadly a question of putting the economies of the euro zone back into operating conditions compatible with monetary union. Of course, this represented savings measures, which effectively weakened countries already hard hit by two recessions (2008-2009 and 2012-2013). Not really a choice...

But let's not forget that it was not a question of winning one model of thought over another. Austerity imposed itself on States spending more than they earned and having no more creditors ready to put more hands in the portfolio. To be honest, let's admit that austerity was indeed the only possible trajectory within the framework of a monetary union in which the countries that make it up are NOT willing to unite either their budgets or their debt. In the context of a Europe of transfers, the deal would have been quite different. It was therefore obvious that austerity was being imposed at a very bad time, and it was equally obvious that in the first instance, the savings measures would have a negative impact on the economies. But such was also the price to pay for the imbalances and excess spending of the first ten years of monetary union. Room for recovery Today, austerity no longer has many supporters. We feel that the tide has turned, in favor of a certain budgetary stimulus: the European Central Bank underlined this again at its last monetary policy meeting, and the European Commission seems, at least behind the scenes, to have an interpretation more and more broad of the objectives to be achieved and the budgets submitted to it. But make no mistake, if austerity is gradually taking a back seat, it is not because political and economic leaders suddenly saw the light and the nonsense it would represent for euro area economies. On the contrary, it is rather because it has borne fruit: several economies in the euro zone have corrected, at least in part, their problems of competitiveness, and the public finances of most countries have stabilized. This, combined with low state financing costs and better economic conditions over the 2014-2017 period, makes it possible to consider turning the page on austerity. This was not a mistake, but a necessary evil, in the operating conditions of the euro zone. In terms of public finances, only Italy, France, Spain and Belgium will still be in a "dangerous" zone in 2020, without being dramatic: their public deficit should be between 1.5% and 3% of their GDP. For all the other countries (including countries such as Greece and Portugal), the situation of public finances is close to balance or even generates a budget surplus. What a long way to go in 10 years! Consequently, in the face of the current economic slowdown, we can indeed envisage a timid budgetary stimulus at the level of the euro zone. By way of example (this is not a recommendation here but an order of magnitude…), if all the countries that could afford it adapted their budget in such a way that their public deficit reached 1.5% of their GDP, that would release, on the scale of the euro zone, an envelope of 150 billion euros, for expenditure or better still, for public investment. It will still be necessary to know how to make the best use of the resources that would be freed up in this way. In this regard, it cannot be said that European governments have shone by their efficiency in the past… The alarming vulnerability of the euro zone (monthly October) OPINION - By Céline BOULENGER, Macroeconomist, Degroof Petercam The new Commission von der Leyen will take office on November 1. With this change in perspective, there is renewed hope for an improvement in the European economy. This hope is however unfounded, here is why. Division instead of union First, the effectiveness of monetary policy is in jeopardy. The resignation of Sabine Lautenschläger reveals the other side of the decor of the latest stimulus package announced by Draghi: many are violently opposed to it. Jens Weidmann also warned that if the European Central Bank (ECB) decides to change the limits set for QE, he would strongly oppose it. Moreover, with interest rates already more than negative, Mario Draghi's magic wand will no longer work any miracles, the latest stimulus measures are creating a lot of smoke, but no flame. During the 2008 crisis and then the eurozone crisis, the ECB had to add a considerable debt buyback program to a reduction in rates from 3.25% in 2008 to -0.4% in 2016 to to restore economy. Today, rates are at -0.5% and the ECB is slowly approaching its limits on public debt purchases. Future possibilities for monetary stimulus are therefore evaporating. This problem exists elsewhere, such as in the United States, but on a smaller scale. Indeed, even if Jerome Powell's arsenal is also diminished, his leeway to act overhangs that of Draghi (the Federal Reserve rate remains above 2%). Some EU members are waking up slowly and launching fiscal stimulus programs (like the Netherlands and Germany) but these remain inconsequential compared to calls for help from the ECB. Second, in addition to a broken ECB, the very foundations of Europe are unstable; the euro is a stateless currency. Indeed, the European Union is anything but a union. Whether at the monetary, banking, political or cultural level, cohesion between EU members is precarious. The monetary union was never finalized and this was felt during the 2008 crisis. Moreover, the budgetary union and the banking union also remain to be completed. Europe is a half-finished project, without identity and without a common voice. Despite the efforts made by the Commission to complete the work in recent years, it still has a lot of work to do if it wants to achieve its objectives. Geopolitical risks Firstly, the trade war between China and the United States threatens the state of health of European industries. For some time now, the Americans have even been flirting with the idea of starting a similar game with the EU, which materialized in the latest decision by the World Trade Organization (WTO) in the dispute over the Airbus file. (Trump just imposed 25% tariffs on 7.5 billion European goods). Hurricane "Brexit" is fast approaching and only increases Europe's vulnerability. Some members of the union are bad; in Italy, for example, even if the latest news is more optimistic, enormous fragilities persist and certain decisions show the Euroscepticism of the Italians (such as their recent adherence to the new “Silk Road” of the Chinese). Second, in the long term, Europe seems to lack ambition. For example, the protection of technologies developed here is poor. This explains why it is in Europe that the Chinese come to do their shopping. The aberrant acquisition of Kuka, the German giant in the production of industrial robots, is the perfect example. If Europe aspires to compete on the global market and to safeguard its sovereignty, it must defend its strengths and invest in tomorrow's technologies such as artificial intelligence and electric vehicles. Where are the European Facebook and Amazon? In a world where the giants, from East and West, dominate all competitions, Europe is invisible. Other aspects of Europe add to its fragility, such as its aging population and the proliferation of "zombie companies" which weigh on economic growth, savings, and productivity. All these cyclical and structural weaknesses show that the hope of seeing a better performing euro zone in the years to come remains minimal. I wish good luck to Ursula von der Leyen and Christine Lagarde because they will need it. Contactless payment takes off in Luxembourg (October monthly) With the recent launch of Apple Pay, the first mobile payment solution available to Luxembourgers, Luxembourg has reached a new milestone in terms of contactless innovation. We can bet that this type of initiative will continue to boost the use of technology, which today represents 37% of transactions recorded on the network. Appreciated for its convenience, this technology quickly became part of consumer habits. In Europe, the leading continent, almost one out of two transactions (47%) is now made without contact. Mastercard, a key player in payment, compares, on the basis of its global network, the evolution of Luxembourg compared to its neighbours. In Europe, the undisputed contactless champions are the Eastern European countries, with the Czech Republic rising to the top in all categories with 93% of contactless in-store transactions. Launched 20 years ago in this country, contactless is now an integral part of the daily lives of Czechs, but also of Georgians, Poles and Hungarians, where technology represents respectively 89%, 83% and 82% of all transactions. at points of sale. Contactless payment is gaining popularity among Luxembourgers In Luxembourg, according to Mastercard estimates, 100% of credit cards and 93% of terminals are currently equipped with NFC technology. Thanks to this favorable infrastructure, contactless payment has taken off since its launch in 2016 and now represents 37% of electronic transactions in the Grand Duchy. According to transactions recorded between July 2018 and July 2019, contactless has grown by 191% in one year in Luxembourg. Today the Luxembourger pays 3 times more than the Belgian in contactless. As it does not require a code for amounts under €25, contactless is synonymous with time savings for the merchant and convenience for the cardholder. According to the transactions recorded by Mastercard in 2019, the food sector is the one for which contactless payment is the most used, with supermarkets (25%), restaurants and fast food outlets (24%) and convenience stores ( 14%) – which include barbers, pharmacies, booksellers, etc. “Several factors can explain the rapid adoption of contactless payment in Luxembourg. In addition to almost all compatible terminals, 100% of Mastercard cards are now equipped with the NFC antenna. The two ends of the payment process, the consumer and the merchant, are therefore both able to choose the means of payment they want. Apart from this favorable infrastructure, we also notice that the Luxembourg consumer is open to new payment technologies and feels confident to use them,” says Henri Dewaerheijd, Country Manager Mastercard BeLux. The security aspect has indeed also played a decisive role in this development. “Before speed and ease of use, security is the key element in reassuring consumers and convincing them to adopt this new method of payment. Today, regular communication on the security of contactless payments makes it possible to increase citizens' confidence in this technology, and thus increase its use. continues Henri Dewaerheijd. Myths around contactless security In Luxembourg too, consumers' perception of contactless payment security plays an essential role. Many myths have been built in recent years, such as the fear that an individual could carry out a transaction without your authorization by simply approaching a payment terminal. “For this to be possible, the fraudster would first have to obtain a payment terminal, and therefore be required to register as a merchant. In the event of fraud, it would therefore be directly identified. Moreover, for the transaction to take place, the terminal should be less than 4 cm from the payment card, which makes the maneuver more complicated. In addition, payment without conta