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 © 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. 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 © 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. 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 © 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. 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 © 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. 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 © 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. 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. © 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. 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 © 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. 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. © 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. 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. © 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. 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. © 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. 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 © 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. 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 © 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. 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 © 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. 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 © 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. 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 € © 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. 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 © 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. 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 © 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. 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 © 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. 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) © 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. 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) © 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. 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. © 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. 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%) © 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. 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) © 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. 36 Double Tax Treaties update 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. 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) © 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. 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 © 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. 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. blog.kpmg.lu
© Copyright 2024 ExpyDoc