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Luxembourg
Tax Update 2014
Moderator
Sébastien Labbé – Head of Tax
February 2014
Main tax measures
of the coalition
program
Main tax measures of the coalition program
Overview
■ Release on 2 December 2013 of the political program of the new Luxembourg
Government (“accord de coalition”)
■ This program is only indicative at this stage, but it confirms the political
commitment of the new Government to ensure a competitive Luxembourg
tax framework while also supporting the European initiatives towards
tax transparency and the OECD work on BEPS
■ One can therefore expect a continuity in the Luxembourg domestic and
international tax policy
■ The following slides provide a summary of the main tax related points
addressed in the program
■ Finance bill to be submitted to Parliament on 5 March 2014
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Companies – main points
Main points
Corporate income tax
Should not be increased
Municipal business tax
Possible general reform
Substance
Others
Incentives
General governance rules and new requirements for operational substance




New transfer pricing legislation
Enhancement to the intellectual property regime
Enhancement to the participation exemption regime
Generalization of the functional currency regime
 Introduction of a notional interest regime (will most likely not be adopted)
 Introduction of a tax regime for coordination center and group treasury
activities
 Tax immunized reserve regime for investment by medium-sized enterprises
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
International and other aspects – main points
Main points
International aspects
 Luxembourg shall continue not to support the EU « financial transaction tax »
proposal
 No opposition to extension of the scope of automatic exchange of information
 Extension of the Luxembourg DTT network
Others
 Standardization and modernization of the system of advance tax agreements
 Regulation of the profession of tax advisors
 Promotion of Islamic Finance
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4
Funds – main points
Main points
“taxe d’abonnement” (subscription tax) should not be increased
Taxes
Possible global reform of the tax regime for Luxembourg investment funds
Incentives
Enhancement to the already existing carried interest regime
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
VAT update
VAT – major reforms in 2013
Main points
VAT Exemption
Article 44.1.d) VATL
Pro rata
EU Commission
VAT rates
Car lease issue
 Former scope of the exemption confirmed
 Scope of the investment management VAT exemption extended to EU supervised UCIs and
AIFs
 VAT Circular n°723ter on risk management services published
 GFBK case (C-275/11) concerning outsourced investment advice
 LCL case (C-388/11) – Turnover of branches not to include in pro rata calculation
 VAT Circular n°765 – Focus on direct allocation method
 Concerns IGP conformity with rules of the Directive 2006/112/EC




Standard rate should increase from 15% to 17%
Intermediate rate should increase from 12% to 14%
Reduced rate should increase from 6% to 8%
3% super reduced rate should remain unchanged
 Application of German VAT on Luxembourg company cars used by cross border commuters
 KPMG Luxembourg brought a claim at the level of European Commission
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Extension of the
management
exemption:
New article
44.1.d) VATL
Impact of the extension of the scope
of the new article 44.1.d) VATL
 Extension of the VAT exemption to the management of UCITs located in different EU
Member States and supervised by an authority similar to the Luxembourg CSSF or CAA.
 The management of Alternative Investment Funds also benefits from the VAT exemption,
irrespective of where the AIF is established.
Equivalent entities supervised by an authority similar to
the Luxembourg CSSF or CAA
Regulated funds: CSSF / CAA
(Luxembourg)
EU
Equivalent
vehicles
+
AIF
Non regulated funds
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9
Impact of the extension of the scope
of the new article 44.1.d) VATL
New scope of the VAT exemption
 Current exemption of the fund management services under article 44, 1, d) VATL
covers the risk management of funds;
 Current exemption of the fund management services under article 44,1,d) VATL
covers the investment management of funds;
 Management of AIF includes an important part of risk management.
Scope of exemption
Fund
Marketing
Fund
Administration
Investment
Management
UCI
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Risk
Management
AIF
10
Exemption of
outsourced
investment
advisory services:
GFBK case
(C-275/11)
VAT exemption on investment management funds:
extension of the scope of the article 44.1.d) VATL
Is the provision of advisory services concerning investment in transferable securities by a third-party to an
investment fund management company include in the concept of “management of special investment funds” and
should therefore be covered by the VAT exemption?
Sub-contractor
Management
services
Management
Company
 Based on the ECJ’s previous case-law, services outsourced by
a fund management company to a third-party manager should be
covered by the exemption, “if, viewed broadly, they form a distinct
whole, and are specific to, and essential for, the management of
those funds.”
In order to benefit from the exemption from VAT, these sub-delegated
services should therefore be:
 Specific and essential for the management of the investment fund;
Management
services
 Individualized (investment fund by investment fund).
SICAV
 In the GFBK case, the ECJ recognized the application of the VAT exemption to outsourced investment advisory
services and held that advisory services concerning investment in transferable securities, provided by a third party to
an investment management company which is the manager of a special investment fund, fall within the concept of
“management of special investment funds” for the purposes of the exemption, even if the third party has not acted on
the basis of a mandate within the meaning of the UCITS Directive.
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
Input VAT
deduction right
Impact of the LCL case (C-388/11)
on the input VAT deduction right
 Based on the ECJ ruling, a principle establishment
situated in a Member State can in principle not take into
consideration the turnover of its branches (whether
established within or outside the EU) to compute its
local input VAT deduction right (prorata).
LuxCo
 Under this scenario, a Luxembourg company (LuxCo)
should set aside the turnover of its branches while
computing its own input VAT deduction right.
Australian Branch
Spanish Branch
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
14
Prorata System Calculation: CIRCULAR N°765
• Economic activities / Non
economic activities.
• Economic activities giving
rise to an input VAT
recovery right.
• Economic activities not
giving rise to an input VAT
recovery right.
Taxable persons
excercising mixed
activities
Circular n°765
Application of the
direct allocation
method
• This method applies to the
input VAT which can be
directly allocated to a
particular activity.
• The scope of the prorata
is limited to overheads,
stock entries, fixed assets
which cannot be allocated
to a particular activity.
• A distintion should at least
be drawn between non
economic activities and
economic activities.
• A precise analytical
accounting system will
become more and more
crucial.
Application of the
general prorata
method
 As a general guideline, the
application of the direct allocation
method should precede the
application of the general prorata.
 The direct allocation method
should either be based on the
invoices received or based on the
allocation key.
 In the absense of precise
guidelines, direct allocation can be
performed on the basis of the
surface area, number of
employees, etc.
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15
The Luxembourg
IGP challenged at
the ECJ level
Commission takes Luxembourg to Court of Justice
over VAT in the case of independent groups of
persons
Why does the Commission challenge Luxembourg?
 Under the VAT directive, in order to be exempt from VAT, the services provided by an IGP to its members
must be directly required for their non-taxable or exempt activities.
 The Luxembourg rule providing for a ceiling for taxed operations seems not to fulfill this condition according
to the EU Commission.
 Moreover, group members should not be allowed to deduct VAT charged to the group.
The European Commission consequently takes the view that these arrangements are not
compatible with the EU's VAT rules. In addition, they would be likely to produce distortions
of competition.
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
17
Commission takes Luxembourg to Court of Justice
over VAT in the case of independent groups of
persons
What about the infringement procedure?
 The infringement procedure recently launched by the European Commission shall not question the
existence of the Luxembourg IGP exemption as such but only the interpretation of limited conditions!
 Indeed the Luxembourg IGP scheme is legally based on Art. 132 of the so-called VAT directive which
expressly confirms that “Member States shall exempt (…)the supply of services by independent groups of
persons…”
As a result even if slightly amended, the Luxembourg IGP exemption should remain
applicable in the future.
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
18
Car lease issue
The German Tax Perspective
Facts:
A Luxembourg established entity puts a company car at the disposal of its employees, resident in
Germany for both personal and private uses.
Previous overview:
 Transposition of article 56 of the Directive 2006/112/EC applicable to the long- term hiring of means of
transport on 1 July 2013 by the German VAT authorities: place of supply
where the
receiver resides.
 The German Tax Authorities claim, with effect as of 30 June 2013, the right of taxation of the supply,
for private use, of company cars by Luxembourg employers to employees working in Luxembourg and
residing in Germany.
Place of supply before and after 1 July 2013:
June, 30
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July, 1
20
Consequences
For the employer:
 German VAT registration
 German periodical/annual VAT returns
 Computation of a private use for Luxembourg VAT returns
→
Real double taxation (taxation in Luxembourg regarding the article16, b)
VATL and taxation in Germany regarding the German Circular)
For the employee:
 Payment of German VAT for the company cars used by employees
established in Germany
Giving the impact of the German VAT treatment , KPMG lodged a
complaint with the Commission against Germany.
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
21
Individuals
Individuals – main points
Main points
Personal taxation
 Review of the progressive income tax bracket
 Review of the various tax deductions available
Net wealth tax
No reintroduction of net wealth tax for individuals
Incentives
 Enhancement to the already existing carried interest regime
 Favorable tax measures for highly skills employees
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
23
Cross-border countries comparison
Assumptions :
•Married taxpayer with 2 dependent children, resident and working in Home country.
•Subject to social security (white-collar worker) in Home country.
•Standard deductions / CY 2014 / Household has no additional income.
100K EUR
Luxembourg
(I) Gross Annual Salary
France
100 000.00 €
Netherlands
100 000.00 €
Germany
100 000.00 €
Belgium
100 000.00 €
100 000.00 €
Annual Income Tax
-
16 825.00 €
-
7 799.00 €
-
34 578.00 €
-
22 078.00 €
-
37 330.10 €
Social Insurance Employee (*)
-
12 369.32 €
-
22 823.00 €
-
8 903.00 €
-
12 301.00 €
-
13 735.55 €
Net in the pocket
(%) Net in the pocket for employee
(II) Social Insurance Employer
(III) Total employer's costs (I) + (II)
(%) Net in the pocket / Total employer's costs
70 805.68 €
69 378.00 €
56 519.00 €
65 621.00 €
48 934.35 €
71%
69%
57%
66%
49%
13 510.00 €
45 632.00 €
9 670.97 €
11 864.00 €
32 686.78 €
113 510.00 €
145 632.00 €
109 670.97 €
111 864.00 €
132 686.78 €
62%
48%
52%
59%
37%
(*) Incl. dependence insurance
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
24
Cross-border countries comparison
Assumptions :
•Married taxpayer with 2 dependent children, resident and working in Home country.
•Subject to social security (white-collar worker) in Home country.
•Standard deductions / CY 2014 / Household has no additional income.
200K EUR
Luxembourg
(I) Gross Annual Salary
France
200 000.00 €
Netherlands
200 000.00 €
Germany
200 000.00 €
Belgium
200 000.00 €
200 000.00 €
Annual Income Tax
-
57 846.00 €
-
32 733.00 €
-
86 578.00 €
-
65 376.00 €
-
83 872.81 €
Social Insurance Employee (*)
-
15 455.72 €
-
42 347.00 €
-
8 903.00 €
-
12 301.00 €
-
26 739.83 €
Net in the pocket
(%) Net in the pocket for employee
(II) Social Insurance Employer
(III) Total employer's costs (I) + (II)
(%) Net in the pocket / Total employer's costs
126 698.28 €
124 920.00 €
104 519.00 €
122 323.00 €
89 387.36 €
63%
62%
52%
61%
45%
15 571.84 €
85 514.00 €
17 670.97 €
11 864.00 €
65 373.56 €
215 571.84 €
285 514.00 €
217 670.97 €
211 864.00 €
265 373.56 €
59%
44%
48%
58%
34%
(*) Incl. dependence insurance
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
25
Impatriates’ tax circular
Applicable for 5 years
Conditions relating to
the employee in case
of assignment
Conditions relating to
the employee in case
of recruitment
Conditions relating to
the employer
Conditions relating to
the new dependent
employment in
Luxembourg
Fully tax exempt
Employer’s
responsibility
to
properly
apply
the
regime
Fully tax exempt
up to the limit of
EUR 50,000 / year
(or EUR
80,000/year under
conditions),
or 30% of the
impatriate’s fixed
remuneration
Lump sum fixed at
8% of the
employee's fixed
monthly
remuneration
capped at EUR
1,500 (lump sum
and cap X2 for
couple under
condtions)
School Fees
New
competences
/skills/knowhow to
Luxembourg
Housing expenses
Yearly travel
(Luxembourg and
the home country)
Tax equalization
expenses
GOAL
New addedvalue/sustain
able activities
from
Luxembourg
COLA
Other relocationrelated expenses
not in Circular
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26
Impatriates’ tax circular
Married, 2 children, partner not working in Luxembourg,
social security contributions disregarded (EUR)
Income
Exemptions
Taxable income
200 000.00
0.00
200 000.00
Removal expenses (to Luxembourg)
20 000.00
20 000.00
0.00
Housing expenses in Luxembourg
36 000.00
60 000.00
0.00
Salary
Yearly travel expenses between Luxembourg and home
country
5 000.00
Tax equalisation expenses
19 000.00
School fees
20 000.00
20 000.00
0.00
COLA/lump sum
18 000.00
18 000.00
0.00
318 000.00
118 000.00
200 000.00
Total
Effective tax rate without the
regime : 35.39%
Annual tax
saving :
50 629 €
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Effective tax rate with the
regime : 19.87%
27
Carried Interest
Carried interest (Law of 12 July 2013)
Carried interest received by individuals, employees or managers of alternative investment funds qualify as other income
• Carried interest taxation regime:
Payment of carried interest excluding the carried interest received upon sale of shares or units representing the carried
interest may be taxed as extraordinary income at a quarter of the global tax rate (around 11% in 2014) plus 1.4%
dependence insurance
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
28
Carried Interest
Carried interest (Law of 12 July 2013)
• Conditions for the application:
• The tax regime applies to individuals who became tax residents in Luxembourg in 2013 or in the 5 subsequent years
(year 2018 included)
• The provisions only apply for income realized within 10 years after the year the individual took his functions in Luxembourg
• They do, however, not apply to individuals that have been Luxembourg tax residents, or taxed on professional income in
Luxembourg anytime in the last 5 years preceding the year 2013
• Neither do the provisions apply to carried interest where prepayments have been made
• Other tax considerations:
Carried interest realized upon sale of units, shares or securities covered by the new law are treated as capital gains, and taxed
accordingly:
• tax free if held for more than 6 months
• except if the individual holds, or held a substantial participation, i.e. a shareholding of more than 10%, at any point of time
during the 5 years’ period preceding the sale or redemption
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29
2013 Direct tax
jurisprudence
(Luxembourg)
Main (corporate) topics in 2013
Abuse
of law
Participation
exemption
regime
Hidden capital
contribution
Exchange
of information
Hidden
dividend
distribution
IP regime
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
31
Abuse of law and investment tax credit (1)
Facts
Fiscal unity
• LuxCo1 performs real estate activities
LuxCo1
LuxCo2
SubCos
• LuxCo 1 sets up LuxCo2 in order to
perform car leasing activities for the other
group companies and to benefit from
economies of scale
• Fiscal unity between LuxCo1 and LuxCo2
Leasing
• LuxCo2 applies for an investment tax credit
(“bonification d’impôts”, based on article 152
bis LITL) for the vehicles used for its leasing
activities
• Luxembourg tax authorities refuse to grant
the tax credit and challenge the transaction
based on the abuse of law principle (§ 6
StAnpG)
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32
Abuse of law and investment tax credit (2)
Decision of the administrative tribunal
(n°31058, 21 may 2013 and n°30540, 27 June 2013)
 Tax authorities: abuse of law is characterised as the structure was set-up solely for tax purposes
(“but exclusivement fiscal”)
 Tribunal: confirms the abuse of law: the taxpayer was not in a position to prove any relevant
economic justification (e.g. that economies of scale were effectively realised)
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33
Abuse of law and restructuring
1
Facts:
SwissCo
receivable
 SwissCo sold shares in and a receivable on LuxCo H29,
for a nominal amount of CHF 1
LuxCo
H29
 Tax authorities challenged whole transaction based on the
abuse of law principle (and considering that the abuse of law
directly derived from the facts at hand, thus rendering any
additional justifications unnecessary)
receivable
(in a loss
position)
LuxCo
S.A.
2
sale
SwissCo

⇒
Both the administrative tribunal (TA 12/07/2012 n°28815)
and the administrative court (CA 7/02/2013 n°31320C)
confirmed the existence of an abuse of law, but on different
grounds
⇒
For the upper court, keeping a receivable deprived of
economic reality for the sole purpose of enjoying the tax
losses carried forward was abusive
receivable
LuxCo
H29
receivable
LuxCo
S.A.
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34
Hidden dividend distributions
and financial activities (1)
Facts:
 LuxCo grants interest free loans to three companies
 2003 and 2004: a deemed income (0.75%) is computed by
LuxCo for tax purposes. The tax authorities issue tax
assessment notices in line with this tax treatment.
LuxCo
IFL
the remuneration and increase the interest rate on the
loans (to 3.5%) based on article 164(3) LITL (i.e. hidden
dividend distribution)
IFL
IFL
 2005 and 2006: the Luxembourg tax authorities challenge
LuxZ
 No supporting documents are provided by LuxCo with
regard to the level of remuneration on the loans
LuxY
FrenchW
 LuxCo claims the right to benefit from the same rates as
applied in 2003 and 2004 (0.75%)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
35
Hidden dividend distributions
and financial activities (2)
See decision of the administrative tribunal (n°30379, 1 July 2013):
 Confirmation of the hidden dividend distribution and increase of the interest rate to 3.5%
 Tax authorities may change their administrative practice (based on the “annuality” principle and in
absence of an individual administrative decision taken in favor of the taxpayer)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
36
Double Tax Treaties
update
Double tax treaties update
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
38
Double tax treaties update
Tax treaties in force
Tax treaties in force in 2014
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Armenia
Austria
Azerbaijan
Bahrain
Barbados
Belgium
Brazil
Bulgaria
Canada
China
Czech Republic
Denmark
Estonia
Finland
France
Georgia
Germany
Greece
Hong Kong
Hungary
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
Iceland
India
Indonesia
Ireland
Israel
Italy
Japan
Kazakhstan
Latvia
Liechtenstein
Lithuania
Macedonia
Malaysia
Malta
Mauritius
Mexico
Moldavia
Monaco
Mongolia*
Morocco
Tax treaties pending
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
Netherlands
Norway
Panama
Poland
Portugal
Qatar
Romania
Russia
San Marino
Seychelles
Singapore
Slovakia
Slovenia
South Africa
South Korea
Spain
Sweden
Switzerland
Tajikistan
Thailand
61.
62.
63.
64.
65.
66.
67.
68.
Trinidad Tobago
Tunisia
Turkey
United Kingdom
United Arab Emirates
USA
Uzbekistan
Vietnam
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
Albania
Argentina
Botswana
Brunei
Croatia
Cyprus
Egypt
Guernesey
Isle of Man
Jersey
Kirgyzstan
Kuwait
Laos
Lebanon
New Zealand
Oman
Pakistan
Saudi Arabia
Serbia
Sri Lanka
Syria
Taiwan
Ukraine
Uruguay
* Terminated as from 2014
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
39
Double tax treaties update
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
40
Double tax treaties update - Germany
New treaty with Germany
(applicable as from 1 January 2014)

Capital gains realized upon disposal of shares in a
company deriving more than 50% of their value
(directly or indirectly) from immovable property
situated in the other Contracting State may be taxed in
the situs state of the immovable property.

Limits the scope of permanent establishments when
stating that building sites, construction and installation
projects constitute a permanent establishment provided
that they last more than 12 months (used to be a
period of 6 months in the old DTT).

Application of a reduced withholding tax rate on
dividends to 5% (from 10% before) when the beneficial
owner is a company of the other Contracting State
holding at least 10% of the capital of the paying
company (before a stake of 25% of the voting shares
was required).

According to the protocol of the new tax treaty, SICARs,
SICAVs and SICAFs may benefit from the
reduced/zero withholding tax rates with regard to
dividend and interest payments (if the investors are
resident in the source country). If certain conditions are
met, these withholding tax rates may also benefit to
Luxembourg FCPs.
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
41
Double tax treaties update - Poland
Protocol to the tax treaty with Poland
(applicable as from 1 January 2014)

The WHT rate on dividends is reduced to 0%
(previously 5%) for shareholdings of at least 10%
(previously 25%) held for at least 24 months prior
dividend payment;

A reduction of the withholding tax rates on interest and
royalties, from 10% to 5%

Capital gains realized upon disposal of shares in a
company deriving more than 50% of its value (directly or
indirectly) from immovable property situated in the other
Contracting State may be taxed in the situs state of the
immovable property.

The exemption currently applicable to dividends paid by
a Luxembourg company to Polish residents (including
individuals) will be eliminated.

A comprehensive exchange of tax information clause

A limitation of benefits (LOB) provision in the case of an
artificial arrangement
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
42
FATCA &
Luxembourg IGA
Exchange of
information
FATCA & Luxembourg IGA
• Luxembourg IGA not yet signed
• Next steps after signature: ratification and local guidance
• Last week, US Treasury released further guidance:
• Chapter 4: 229 pages
• Coordination between chapter 3, 4 and 61: 336 pages
• Deadline approaching quickly : 1 July 2014
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
44
Exchange of Information
Last week OECD introduced
• Common Reporting Standard (CRS),
which contains the reporting and due diligence
rules to be imposed on financial institutions; and
• Model Competent Authority Agreement (CAA),
pursuant to which governments would agree to
exchange the information reported.
• The scope of the CRS is largely the same as
the U.S. Model 1 IGA
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
45
BEPS and
EU tax policy
OECD and EU actions against tax fraud –
A year in review
December
2012
September 2014
July 2013
September
2015
EU actions against tax fraud
January
December 2014
2015
BEPS (OECD)
 Proposed amendment of the PS
Directive
 Revised discussion draft on TP
aspects of intangibles
 Expert group on digital economy
(creation and 1st meeting)
 White paper on TP documentation
 Reinforcement of the Code of
conduct (launched)
 Platform for good governance
(creation and 2 meetings)
 Broadening the scope of exchange of
information (in progress)
 Quick reaction mechanism to combat
VAT fraud
 Memorandum on TP documentation
and C by C reporting
 Artificial avoidance of PE status
(request for input)
 Digital economy (request for input)
 Hybrid mismatch arrangements
(1st meeting)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
47
Address the tax challenges
of the digital economy
Digital economy
• Thorough examination of business models and characterisation of income
• Identify difficulties posed by the digital economy for existing tax rules, covering both direct and indirect taxes
• Significant digital presence in a country but lack of nexus under existing rules
• Attribution of value created from the generation of marketable location-relevant data
• Source rules
• Effective collection of VAT/GST with respect to cross-border supply of digital goods and services
Contemplated timeline
Jan
2014
Mar
March 2014
Discussion draft
Apr
April 2014
Public consultation
Sep
Dec
2015
September 2014
Final report
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
48
Proposed amendment of the EU
Parent-Subsidiary Directive
First draft of modified EU Parent-Subsidiary Directive released on 25 November
2013:
• Introduction of a general anti-abuse rule into the Directive (= to ignore artificial arrangements put in place with the
“essential purpose of obtaining an improper tax advantage under the Directive”. For these purposes, arrangements are
artificial if they do not reflect “economic reality”), and
• Tightening up of the Directive (= hybrid loan arrangements are no longer eligible for the tax exemptions provided
under the Directive).
Member States are expected to implement the amended Directive by 31 December 2014. However, the proposal must first
be approved by the EU Parliament and the Member States themselves.
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
49
BEPS – Luxembourg political program
“Luxembourg is committed to move forward
towards automatic exchange of information (...)
provided that such move is in line with the OECD,
in order to ensure the creation and
implementation of an international standard”
Statement of Finance Minister Pierre Gramegna,
December 10, 2013
“ The government will implement new
general requirements for all economic
sectors to have physical and operational
substance in Luxembourg”
“The new Government remains committed to
continuing to competing fairly with other EU
countries in order to ensure the budgetary
discipline of the member states as well as the
competitiveness towards non member states,
together with participating positively to the
OECD initiatives”.
Luxembourg political coalition program (extract),
December 2013
“ Luxembourg will contribute to the OECD’s
work on BEPS and to the European initiatives in
the area of the Code of conduct, of the revision of
the Parent-Subsidiary Directive (….)”
“The government will take measures to attract
headquarters of international groups, notably
through the introduction of a general transfer
pricing legislation fully in line with
international rules and principles, the
modernization of the intellectual property and
participation exemption regimes, the
formalization of the functional currency regime
for tax purposes”
Luxembourg political coalition program (extract),
December 2013
Luxembourg political coalition program (extract),
December 2013
Luxembourg political coalition program
(extract), December 2013
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
50
OECD BEPS project – Contemplated timeline
September
2014
September 2014
September
2015
September 2015
December
2015
December 2015
 Digital Economy Report

CFC Rules
 Addressing TP Interest deductions
 Hybrids

Interest Deductibility
 Revision of HTP Criteria
 Review of HTP Regimes

Strategy on expansion of FHTP

 Multilateral Instrument
Addressing avoidance of PE
 Preventing Treaty Abuse
status
 Addressing TP aspects of
Intangibles (Phase 1)
 Addressing TP documentation
 Multilateral Instrument report

Addressing TP aspects of
Intangibles (Phase 2)

Addressing TP aspects of risks
and capital

Addressing TP aspects of other
high risk transactions

Report on Data and Economic
Analyses

Mandatory Disclosure Rules

Dispute Resolution
8
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
51
EU actions against tax fraud –
Contemplated timeline
Feb.
/ March2014
2014
September
 Savings Directive (amendment)
– political agreement
May 2014
September
2015

Automatic exchange of
information (amendment Directive
2011/16/EU) – orientation debate
 PS Directive (amendment) –
orientation debate
June 2014
December
2015
 PS Directive (amendment) –
political agreement
 Code of conduct (business
taxation) – endorsement of
conclusion
 CCCTB – orientation debate
8
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
52
Conclusion
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
53
Sébastien Labbé
Antoine Badot
+352 22 51 51 – 5565
[email protected]
+352 22 51 51 – 5558
[email protected]
Partner
Director
Konstanze Ziegler
Frédéric Scholtus
+352 22 51 51 – 5466
[email protected]
+352 22 51 51 – 5333
[email protected]
Director
Director
Gérard Laures
Philippe Neefs
+352 22 51 51 – 5549
gé[email protected]
+352 22 51 51 – 5531
[email protected]
Partner
Partner
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
54
World Tax 2014: KPMG Luxembourg on top for tax services
World Transfer Pricing 2014: KPMG Luxembourg with top
ranking for transfer pricing services
KPMG: Excelling in tax planning & tax transactional work in
Luxembourg (2008-2013)
The information contained herein is of a general nature and is not
intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is accurate
as of the date it is received or that it will continue to be accurate in the
future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular
situation.
© 2014 KPMG Luxembourg S.à r.l., a Luxembourg private limited
company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
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