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EY Tax Club
Year-end Tax update
John Hames / Sylvie Leick / Yannick Zeippen
2 December 2015
Page 2
Agenda
► Tax rulings
► Transfer Pricing
► Anti-abuse rules
► Transparency
► IP Tax regime
► Net Wealth Tax
► Individuals
► Double taxation treaties
► VAT
► Trends
2 December 2015 EY Tax Club
Page 3 2 December 2015 EY Tax Club
Tax rulings
Page 4
New tax ruling process - effective 2015
Formalization of the previous tax ruling practice into Luxembourg domestic law (§ 29a
Abgabenordnung and Grand-Ducal Regulation (GDR) dated 23 December 2014):
► Formal requirements (e.g., information on taxpayer, detailed description of envisaged
transactions, detailed tax analysis, bona fide statement).
► Timing of filing of tax rulings: GDR requires that transactions must not have “produced their
effects”.
► Validity of 5 years (under certain conditions).
► New Tax Ruling Commission (“commission des décisions anticipées”) – still rulings are
addressed to the head of the tax office.
► New administrative service fees applicable for any request submitted as from 1 January 2015
(range between EUR 3,000 – 10,000) – no fees for pending rulings filed before 31 December
2014.
► Publication of anonymized “executive summaries” / exchange of information.
► Increased focus on business purpose and transfer pricing.
► No recourse possible against negative decision – however a claim can be filed against the
tax assessment.
2 December 2015 EY Tax Club
Page 5
New tax ruling process
► In essence, no substantial change compared to the past except for the fact that
the former administrative practice is formalized under a legal framework.
► Focus on providing a robust legal framework and improving the dialogue
between the taxpayer and the tax administration.
► Tax rulings remain an interpretation of the Luxembourg tax law applicable to a
specific fact pattern.
► Increased tax transparency in line with principles of the new Government’s fiscal
policy.
► Contribution to a competitive domestic and international tax environment.
► Stable framework with the aim to achieve enhanced planning security and
conformity with OECD / BEPS standards.
2 December 2015 EY Tax Club
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Transfer Pricing
Page 7
Transfer pricing - effective 2015
Formalization of the framework for Luxembourg transfer pricing (TP) legislation and
introduction of transfer pricing documentation requirements:
► Under prior legislation, power of the Luxembourg tax authorities to reassess the
taxable result of a Luxembourg taxpayer in cases where an unjustified transfer of
profits had been made due to a special economic relationship of that taxpayer with a
non-resident taxpayer.
► New regulation outlines the arm’s length principle in line with the OECD Model
Convention and applicable (as from 1 January 2015) to transactions with resident and
non-resident related party.
► TP documentation required for all transactions between related parties for the
purpose of verification of transfer prices by the Luxembourg tax authorities.
► New Luxembourg ruling procedure applies also to Advance Pricing Agreements
(APA).
2 December 2015 EY Tax Club
Page 8 2 December 2015 EY Tax Club
Anti-abuse rules
Page 9
Parent Subsidiary Directive (PSD) changes
► Draft law n°6847 aims at introducing anti-hybrid (avoidance of double non-
taxation due to hybrid mismatches in two Members States) and general
anti-abuse rule (“GAAR”, benefit of PSD denied for structures which main
purpose is to gain a tax advantage).
► Application only within intra-EU context.
► Implementation deadline is 31 December 2015.
2 December 2015 EY Tax Club
Page 10
LuxCo
EUCo
► Based on national law, loan instrument qualifies as equity
► Income derived: tax exempt dividend
► Based on national law, loan instrument qualifies as debt
► Expense on loan: tax deductible interest
Loan granted from LuxCo to EUCo
► Tax exemption denied
Parent Subsidiary Directive (PSD) changes Anti-hybrid provision
2 December 2015 EY Tax Club
Page 11
► “Member States shall not grant the benefits of this Directive to an
arrangement or a series of arrangements that, having been put into place
for the main purpose or one of the main purposes of obtaining a tax
advantage which defeats the object or purpose of this Directive, are not
genuine having regard to all relevant facts and circumstances.”
► “An arrangement or a series of arrangements shall be regarded as not
genuine to the extent that they are not put into place for valid
commercial reasons which reflect economic reality.”
Parent Subsidiary Directive (PSD) changes GAAR
2 December 2015 EY Tax Club
Page 12
US Branches
► Discussions between the Luxembourg tax authorities and the IRS regarding
the tax treatment of US branches of Luxembourg companies resulting in
double non-taxation.
► Protocol or exchange of letters to the US-Luxembourg tax treaty providing for
specific requirements that need to be met in order to be able to claim a
branch exemption likely to be concluded; possibly specific grand-fathering
period for existing US branch structures.
► Going forward, the Luxembourg tax authorities will, in essence, no longer
issue advance tax clearances confirming the Luxembourg tax treatment of
US branches.
► Situations to be analyzed on a case-by-case basis (signed advance tax
clearance obtained or pending, US branch implemented, etc.).
2 December 2015 EY Tax Club
Page 13
Mandatorily redeemable preferred shares (MRPS)
► Tax treatment of MRPS under discussion due to hybrid treatment (debt
qualification for tax purposes vs equity treatment for accounting and legal
purposes).
► According to latest discussion with Luxembourg tax authorities, debt
qualification should be upheld provided this is also reflected in the statutory
annual accounts (substance over form approach under Lux GAAP or IFRS).
► Applicable at the latest for accounts closing as from 1 January 2016.
2 December 2015 EY Tax Club
Page 14
Financial instruments under critical review
► Qualification for tax purposes: analysis of all criteria will result in the
determination of debt or equity.
► Critical review of the terms and conditions of various financial
instruments (CPECs, IPPECs, etc.), e.g. typical “equity” features:
► Crossed conversion options (issuer and holder) no longer accepted
► Stapling (instrument connected with shares) to be avoided
► Maturity < 30 years
► Determination of interest (not profit participating)
2 December 2015 EY Tax Club
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Transparency
Page 16
Transparency Package – Exchange of rulings
► March 2015: EU Commission presented package of tax transparency
measures (Transparency Package):
► Assessing possible new transparency requirements for multinationals, e.g. public
disclosure of certain tax information by multinationals
► Reviewing the Code of Conduct on Business Taxation
► Quantifying the scale of tax evasion and avoidance
► Repealing the Savings Tax Directive
► Key element: Proposal to change Directive 2011/16/EU to provide for
mandatory automatic exchange of information on tax rulings (Advance
Tax Rulings & Advance Pricing Agreements).
► Initial division among Members States – political agreement finally reached at
ECOFIN meeting of 6 October 2015.
2 December 2015 EY Tax Club
Page 17
Transparency Package – Exchange of rulings
► Key features of the political agreement:
► Requirement to exchange information automatically on advance cross-border tax
rulings, as well as APAs (“push”)
► Member states receiving the information will be able to request further information
where appropriate (“pull”)
► Storage of the exchanged information on a secure central directory accessible to
all Member States and, to some extent, to the EU Commission
► Member States will have the option to exclude from information exchange
advance tax rulings and pricing arrangements issued to companies with an
annual net turnover of less than €40 million at the group level, if such
advance cross-border rulings and APAs were issued, amended or renewed
before 1 April 2016; exemption does however not apply to companies
conducting mainly financial or investment activities.
2 December 2015 EY Tax Club
Page 18
Transparency Package – Exchange of rulings
► Implementation:
► Application of new rules from 1 January 2017.
► Directive will be retroactive to 1 January 2012, but specific transition
rules for rulings issued before 1 January 2017 will apply:
► Advance cross-border rulings and APAs issued, amended or
renewed between 1 January 2012 and 31 December 2013
will be exchanged under the condition that they are still
valid on 1 January 2014.
► Advance cross-border rulings and APAs issued, amended or
renewed between 1 January 2014 and 31 December 2016
will be exchanged irrespectively of whether they are still
valid or not.
2 December 2015 EY Tax Club
Page 19
FATCA / Exchange of information
► Entry into force on 29 July 2015 of the FATCA agreement signed with the
US, including the Memorandum of Understanding signed on 28 March 2014
and the exchange of notes.
► Deadline for 2015 reporting was 31 August 2015; deadline is 30 June for
subsequent years.
► Circular letters (ECHA Nos. 2 and 3) issued, providing for more detailed
guidelines on the application of the agreement by Luxembourg financial
institutions and on the format to be used by financial institutions for submitting
the required information to the Luxembourg tax administration.
2 December 2015 EY Tax Club
Page 20
FATCA / Exchange of information
► Draft law n°6858 on the automatic exchange of information in the field of
taxation.
► Incorporate to the greatest extent possible of the provisions of the FATCA
law.
► The automatic exchange will cover among others:
► the account balance or value, including, in the case of a Cash Value Insurance
Contract or Annuity Contract, the Cash Value or surrender value;
► the total gross amount of interest, dividends, and other income generated with
respect to the assets held in the account;
► the total gross proceeds from the sale or redemption of Financial Assets paid or
credited to the account.
2 December 2015 EY Tax Club
Page 21 2 December 2015 EY Tax Club
IP Tax regime
Page 22
IP tax regime
► Abolishment of existing regime as from 1 July 2016.
► Transitional period starting on 1 July 2016 and expiring on 30 June 2021: regime will continue to apply until the aforementioned expiry date to any qualifying intellectual property (IP) that has been constituted or acquired before 1 July 2016, including improvements made to such IP provided that such improvements are terminated before 1 July 2016.
► Safeguard measure: expiry of the transitional period on 31 December 2016 if:
► IP has been acquired after 31 December 2015 from a related party;
► IP has, at the time of its acquisition, not been already eligible for the Luxembourg IP Regime or for a foreign tax regime corresponding to the Luxembourg IP Regime.
► Spontaneous communication of information for new entrants after 6 February 2015.
2 December 2015 EY Tax Club
Page 23 2 December 2015 EY Tax Club
Net Wealth Tax
Page 24
New NWT reduction mechanism
► As from 1 January 2015 the determination of the unitary value as well as of
the net wealth tax (NWT) on an annual basis.
► Amendment of the mechanism for claiming NWT reduction: CIT of the
preceding year (instead of the CIT of the same year as it was previously the
case) to determine the limit of the NWT reduction, i.e. CIT of the year N
constitutes the limit for the reduction of the NWT of the year N+1.
► Request for NWT reduction of the year N+1 should be made in CIT return for
the year N.
► Deadline for building the special NWT reserve unchanged, i.e. at the latest at
the time of the closing accounts following the financial year for which the
NWT is claimed.
► Attention: exceptionnally, NWT reduction for the years 2014 and 2015 must
be claimed in the tax return 2014.
2 December 2015 EY Tax Club
Page 25
New NWT reduction mechanism
Year of assessment: 2016
NWT 2016: To be assessed on unitary value as at 1.1.2016 based on
accounts as at 31.12.2015
Limit: CIT 2015, known in 2016 based on accounts as at
31.12.2015
Request for NWT
reduction:
to be filed in corporate tax return 2015
Deadline for booking
special reserve:
31.12.2017
NB: The special reserve must be constituted at the occasion of the allocation of the
profit of the financial year (either allocation of 2015 results which takes normally
place in 2016 or allocation of 2016 results which normally takes place in 2017), but
at the latest at the closing of the financial year following the year for which the
reduction of net wealth tax is requested (i.e. NWT reduction claimed for 2016, so at
the latest reserve must be recorded in the accounts as at 31.12.2017).
2 December 2015 EY Tax Club
Page 26
► Differentiated NWT rate:
► For unitary value up to EUR 500 million: 0.5%
► For unitary value above EUR 500 million: EUR 2,500,000 + 0.05% calculated on the
taxable amount less EUR 500,000,000
► Minimum IRC will be replaced by new minimum NWT:
► EUR 3,210 if the sum of fixed financial assets, transferable securities, cash, and
receivables owed to affiliated companies exceeds 90% of their balance-sheet total and
EUR 350,000; or
► If the aforementioned threshold is not met, the amount of minimum NWT will depend on the
balance-sheet total as of the closing of the preceding financial year:
New NWT regime (1.1.2016)
2 December 2015 EY Tax Club
Page 27
► For purposes of determining balance-sheet total, use of commercial
balance sheet (valuation according to Income Tax Law and not to
Valuation Law).
► Exclusion of assets for which taxation right belongs to another country
based on a tax treaty (immovable property, permanent establishment).
► Reduction of minimum net wealth tax by amount of CIT after tax credits
of previous year.
► Minimum NWT also applicable to :
► Companies in a tax consolidation
► Securitization companies, SICARs, SEPCAVs and ASSEPs
New NWT regime (1.1.2016)
2 December 2015 EY Tax Club
Page 28
► Amendments to the tax consolidation regime:
► Introduction of horizontal tax consolidation.
► Possibility to include Luxembourg permanent establishments of companies
resident in a Member State of the EEA and fully liable to a tax corresponding to
Luxembourg corporate income tax into a tax consolidation.
► Extension of the benefit of exit taxation to migrations to any country which is
not within the EEA provided that this third country has concluded a double
taxation treaty with Luxembourg containing a clause allowing the exchange
of information in line with the OECD principles.
Other changes for corporate taxpayers
2 December 2015 EY Tax Club
Page 29 2 December 2015 EY Tax Club
Individuals
Page 30
► Tax amnesty (1.1.2016 – 31.12.2017):
► No prosecution for tax fraud if spontaneous filing of corrective tax return and
payment of amount of tax due within one month following receipt of revised tax
assessment.
► Tax due increased by 10% for corrective tax return filed in 2016.
► Tax due increased by 20% for corrective tax return filed in 2017.
► Step-up provision for substantial shareholding upon migration of an
individual’s tax residency to Luxembourg.
► Option to be taxed as a resident for the entire tax year with entitlement to
claim the reimbursement of a possible excess of income tax withheld.
► Adaptation of revaluation coefficients (revaluation of acquisition price for
purposes of determining taxable capital gains).
Individuals
2 December 2015 EY Tax Club
Page 31 2 December 2015 EY Tax Club
Double Taxation Treaties
Page 32
Double taxation treaties (DTT)
► In process (draft law):
► DTT with Andorra and Croatia
► New DTT with Estonia and Singapore
► Protocols to the existing DTT with the United Arab
Emirates, France, Ireland, Lithuania, Mauritius and
Tunisia
► Signature:
► DTT with Uruguay and Brunei
► New DTT with Hungary
► Exchange of notes to the DTT with Austria
2 December 2015 EY Tax Club
Page 33 2 December 2015 EY Tax Club
VAT changes
Page 34
VAT
► VAT rates increase: the standard VAT rate of 15% increased to 17%, the
reduced VAT rates of 6% and 12% increased respectively to 8% and 14%
from 1.1.2015.
► Recovery of VAT by holding companies: Holding companies can have a
full VAT deduction right when rendering management services to companies
in which they hold shares, unless they also perform VAT exempt transactions
(joined cases Larentia +Minerva (C-108/14) and Marenave (C-109/14)).
► Luxembourg law dated 26 May 2014 lays down a change to article 76
introducing from 1.1.2015 the right to submit a claim against the
assessment after the three months deadline, but not later than 6 months, if
the taxable person was not in the position to react for reasons beyond his
control.
2 December 2015 EY Tax Club
Page 35 2 December 2015 EY Tax Club
Trends
Page 36
► Global Forum on Tax Transparency
► EU:
► Patent boxes
► GAAR principle into Interest & Royalties Directives
► State Aid investigations
► Common Consolidated Corporate Tax Base (CCCTB)
► Financial Transaction Tax
► OECD BEPS action plan
► Tax reform 2017
Trends
2 December 2015 EY Tax Club
Page 37
Any questions?
2 December 2015 EY Tax Club
Page 38
EY Tax Club on Linkedin
2 December 2015 EY Tax Club
Page 39
EY Tax Club Evaluation Form
2 December 2015 EY Tax Club
Page 40
Contacts Details
2 December 2015 EY Tax Club
John Hames – Partner, Business Tax Leader
Email Address: John.Hames@lu.ey.com
Phone Number: +352 42 124 7256
Sylvie Leick – Executive Director, Human Capital Leader
Email Address: Sylvie.Leick@lu.ey.com
Phone Number: +352 42 124 7242
Yannick Zeippen – Partner, Indirect Tax
Email Address: Yannick.Zeippen@lu.ey.com
Phone Number: +352 42 124 7362
Page 41
Disclaimer
The information in this presentation is intended to provide only a
general outline of the subjects covered. It should not be regarded
as comprehensive or sufficient for making decisions, nor does it
replace professional advice. Accordingly, Ernst & Young Tax
Advisory Services Luxembourg S.à r.l. accepts no responsibility
for loss arising from any action taken or not taken by anyone using
this information. The information herein will have been
supplemented by explanations arising from any oral presentation
by us and should be considered in the light of this additional
information. If you require any further information or explanations,
or specific advice, please contact us and we will be happy to
discuss matters further.
EY Tax Club 2 December 2015
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