Luxembourg has a reputation for being a tax-friendly country, but it's not entirely tax-free. Its history as a financial hub and attractive location for businesses stems from several factors:

1. **Strategic Location and Stability**: Since the mid-20th century, Luxembourg has leveraged its central location in Europe and political stability to attract businesses.

2. **Financial Sector Growth**: In the 1960s and 1970s, Luxembourg began to develop its financial services industry, which grew significantly due to favorable regulatory frameworks and banking secrecy laws.

3. **Tax Treaties and Incentives**: Luxembourg signed a multitude of tax treaties to prevent double taxation, making it an attractive location for multinational corporations. Its tax incentives, such as low corporate tax rates and flexible corporate structures, further enhanced its appeal.

4. **EU Membership and Adaptation**: As a founding member of the European Union, Luxembourg has adapted to comply with EU regulations while maintaining its attractiveness to businesses through innovation in its financial and corporate laws.

5. **Reputation for Tax Planning**: Luxembourg became known for its effective tax planning tools, such as holding companies and investment funds, which allowed for tax efficiency.

It's important to note that Luxembourg has made efforts to align with international tax standards and increase transparency, particularly following global pressure to combat tax avoidance and evasion. The country has worked towards reforming its tax policies and increasing cooperation with international tax authorities.

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