Luxembourg Tax Alert 2016-02
You will find below a summary of some of the most important tax developments that have happened since the release of our last newsletter, at OECD, EU or country level, in the area of tax transparency and the fight against tax avoidance.
EU – Tax transparency and anti-BEPS initiatives
ECOFIN Meeting on Corporate Tax and release of a draft EU Anti-BEPS Directive
On 8 December 2015, the Council of the EU (ECOFIN) met to discuss recent corporate taxation initiatives launched by the European Commission and supported by the European Parliament. The ECOFIN discussed inter alia the status of the proposals for a Directive on a Common Consolidated Corporate Tax Base (CCCTB) taking into account the Commission’s work on a potential anti-BEPS Directive. The ECOFIN also formally adopted the Directive amending the existing Directive on administrative co-operation in the field of direct taxation (2011/16/EU) on automatic exchange of information on tax rulings, as well as agreements with Liechtenstein, San Marino (approved for signing), and Switzerland on the automatic exchange of financial account information.
Further to this meeting, the Council released details of a possible draft EU directive addressing certain BEPS issues. The issues covered reflect certain international aspects of the proposal for a CCCTB, including a number that are directly linked to BEPS Actions. The proposed rules lay down standard de minimis rules in relation to the definition of permanent establishment, Controlled Foreign Companies, a switch-over clause, general anti-abuse rules (GAAR), exit taxation, interest limitation, and hybrid mismatches.
EU Parliament issues recommendations to combat aggressive corporate tax planning and evasion
The resolution, passed on 16 December 2015, builds on the work of the Parliament’s Special Committee on Tax Rulings, whose recommendations were approved at the 26 November plenary session. Members at the Parliament asked the Commission, inter alia, to table a proposal for country-by-country reporting on profit, tax and subsidies by June 2016, as well as a proposal for introducing a “Fair Tax Payer” label, introduce a Common Tax Base (CCTB) as a first step, which later on should be consolidated as well (CCCTB), strengthen the mandate and improve transparency of the Council Code of Conduct Working Group on Business Taxation, provide guidelines regarding “patent boxes” so as to ensure they are not harmful, etc. The EU Commission will have three months to respond to every legal recommendation, even if it does not submit a legislative proposal.
EU Parliament has also agreed on a new six-month mandate for the Special Committee on Tax Rulings, which includes close monitoring of the legal initiatives related to corporate taxation. The new committee will also follow up on on-going work by international institutions, including the OECD and G20.
Global Forum on Transparency and Exchange of Information for Tax Purposes – Luxembourg largely compliant
The Global Forum on Transparency and Exchange of Information for Tax Purposes on 30 October 2015 released new compliance ratings on transparency in tax matters following a peer review process. Luxembourg received the overall rating of “largely compliant” with the Global Forum commending Luxembourg’s firm commitment towards the efficient implementation of internationally agreed transparency standards for tax purposes.
Please follow this link to view the press release of the Luxembourg government.
Local implementation – BEPS and tax transparency measures
BEPS Action 5 – Luxembourg: Repeal of the current Intellectual Property (IP) regime
The Luxembourg Parliament voted on 17 December 2015 the Budget Bill for 2016, which includes the repeal of the current IP regime. This measure aims at ensuring that Luxembourg is compliant with BEPS Action 5 recommendations. The Bill does not contain any provisions on a new IP regime (which would be in line with the Nexus approach). However, one may expect the release of new legislation in the coming months.
Please follow this link to view our newsletter.
BEPS Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting
Several countries, listed below, either plan to pass, or have already passed, laws implementing Country-by-Country (CbC) reporting (and other transfer pricing disclosure requirements based on Action 13 of the BEPS Action Plan) by the financial year-end.
United States – Congressional hearings on BEPS
On 1 December 2015, the Senate Finance Committee and the House Ways and Means Committee’s Subcommittee on Tax Policy both held hearings relating to the BEPS project.
Finance bill 2016 – draft clauses
The UK Government published on 9 December 2015 draft clauses for its forthcoming Finance Bill 2016, for consultation.
These include new anti-hybrid rules, which effectively prevent a tax deduction in the UK for a cross border payment where that payment is not subject to the relevant foreign tax. The rules also cover situations where there is a double deduction for the same payment.
Changes to the Patent Box regime would restrict its availability and link its benefits to research and development incurred by the relevant company.
In addition, there would be a requirement for large businesses to publish on the internet their tax strategy as it relates to UK taxation.
Consultation process opened
Following the October 2015 release of the BEPS deliverables, some consultations in the UK have already been opened—including one on the UK’s rules concerning the deductibility of corporate interest expense and how this treatment would be affected by BEPS Action 4 (which seeks to develop recommendations in the design of rules limiting the deductibility of interest and other financial payments made to third parties and related parties).
BEPS and treaty updates
New tax treaty between Australia and Germany
The new tax treaty signed between Australia and Germany on 12 November 2015 is the first tax treaty Australia has signed that comprehensively incorporates the proposals in the BEPS final recommendations. This includes several provisions in line with BEPS Action 6 recommendations.
EU Commission asks the Netherlands to amend the Limitation on Benefits clause (LOB) in the Dutch-Japanese Tax Treaty
The Commission believes that under the current terms of the LOB clause, some entities located elsewhere in the EU/EEA are excluded from the benefits of the tax treaty. This means that they suffer higher withholding taxes on dividends, interest and royalties received from Japan than similar companies with Dutch shareholders or whose shares are listed and traded on “recognised stock exchanges”, which include only certain EU and third-country stock exchanges.