Professional Documents
Culture Documents
International Tax and Vat Developments Luxembourg 2014
International Tax and Vat Developments Luxembourg 2014
Agenda
Introduction
Guy Harles, Co-Chairman, Arendt & Medernach
EU: New challenges in the field of VAT (especially for real estate
investment funds)
Bruno Gasparotto, Principal, Arendt & Medernach
2
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
3
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I. Background
Global issue:
increased segregation between the location where actual business activities and
investments take place and the location where profits are reported for tax purposes
Base erosion and profit shifting: allocation of income and expenses between related
corporations or branches of the same legal entity in order to reduce the overall tax liability of the
group or corporation
What is at stake?
States side
Need of tax ressources
Fair allocation of taxing rights
Integrity of tax system
MNEs side
Decreasing global effective tax rate
CSR: managing reputational risk
4
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I. Background
G20 input
February 2013 Publication of the BEPS report announcing the Action Plan
5
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I.
Background / OECD
Action
Outcomes
Agenda
1. Digital economy
Report
Sept. 2014
2. Hybrid mismatch
arrangements
(i)
Sept. 2014
(ii)
3. CFCs
Strengthen domestic
rules
Recommendations regarding
the design of domestic rules
Sept. 2015
4. Interest deductions
(i)
Sept. 2015
Dec. 2015
(ii)
Recommendations
regarding the design of
domestic rules
Changes
to
transfer
pricing principles
6
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I. Background
OECD Action Plan
Issue
Action
Outcomes
Agenda
(i)
(i)
Sept. 2014
(ii)
Sept. 2015
(iii)
Dec. 2015
Prevent
(i)
Sept. 2014
(ii)
7. Permanent
establishment
Prevent
artificial
avoidance of PE status
Sept. 2015
Sept. 2014
Sept. 2015
7
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I. Background
OECD Action Plan
Issue
Action
Outcomes
Agenda
11-13. Transparency
(i)
(i)
Elaborate
methods
to
collect and analyze data
on BEPS and actions to
address it
(ii) Require
taxpayers
to
disclose their aggressive
planning arrangements
(iii) Re-examine transfer
pricing documentation
Recommendations
regarding data to be
collected
and
methodologies to analyze
them
(ii) Recommendations
regarding the design of
domestic rules
(iii) Changes
to
transfer
pricing guidelines
(iii)
Sept. 2014
Make
dispute
resolution
mechanisms more effective
Sept. 2015
15. Multilateral
instrument
Elaborate
(i)
(ii)
Report
identifying
relevant
public
international law and tax
issues
Elaborate a multilateral
instrument
8
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I. Background
HYBRID MISMATCH ARRANGEMENTS
Recommendation
Development of model treaty provisions and recommendations regarding the design of domestic rules to neutralise
the effect of hybrid instruments and entities ( Public Discussion Draft ACTION 2) including domestic law
provisions
Ensuring that hybrid instruments and entities are not used to obtain the benefits of treaties unduly
Preventing exemption or non recognition for payments that are deductible by the payor
Denying a deduction for a payment that is not includible in income by the recipient or similar
9
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
10
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
I. Background
TREATY ABUSES
Existing domestic and international tax rules should be modified in order to more closely align the
allocation of income with the economic activity generating that income (Public Discussion Draft
ACTION 6)
Recommendations
11
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Fund
Equity
return
Interest
CPECS
/ PECS
LuxCo
12
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Fund
Interest
Loan
LuxCo 1
Risks under BEPS
LuxCo 2
Solutions ?
13
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
LuxCo
Double non-taxation
Foreign
jurisdiction
LLC/LP
Loan
Solutions ?
14
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Fund
Dividends
LuxCo
Dividends
ForeignCo
Solutions?
Increasing economic substance at LuxCos level to satisfy the main purpose test
Transfer of risks and functions to LuxCo
Presence of Luxembourg AIF / AIFMD gives a non-tax motive
15
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
16
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Summary
1. International initiatives
1.1. Foreign Account Tax Compliance Act (FATCA)
1.2. EU Savings Directive 2003/48/EC (EUSD)
1.3. Council Directive 2011/16/EU on Administrative Cooperation
1.4. Multilateral Convention on Mutual Administrative Assistance
2. Outlook
2.1. Foreign Account Tax Compliance Act (FATCA)
2.2. EU Savings Directive 2003/48/EC (EUSD)
2.3. Council Directive 2011/16/EU on Administrative Cooperation
2.4. Multilateral Convention on Mutual Administrative Assistance
19 June 2014
Luxembourg
1. International initiatives
1.1. Foreign Account Tax Compliance Act (FATCA)
1.2. EU Savings Directive 2003/48/EC (EUSD)
1.3. Council Directive 2011/16/EU on Administrative Cooperation
1.4. Multilateral Convention on Mutual Administrative Assistance
18
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
1. International initiatives
1.1. Foreign Account Tax Compliance Act (FATCA)
Mechanism
Foreign financial institutions (FFIs) must report to US tax authorities (IRS) information about financial
accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership
interest
An FFI is a non-US entity that accepts deposits in the ordinary course of banking or similar business, is engaged in the business
of holding assets on account for others or is primarily engaged in the business of investing, reinvesting, or trading in securities
In case of non-compliance of the FFI with FATCA reporting obligation 30% withholding tax applies on all its US source
investment income as of the year 2014
The implementation of FATCA relies on intergovernmental agreements (IGA) to be signed between the US
and foreign countries 2 Models of IGAs have been released by the IRS
Under Model 1 IGA, adopted by Luxembourg, the FFIs must report tax information to the relevant domestic authority (e.g.
Luxembourg tax authorities), which will then automatically transmit the information to the IRS FFIs established in jurisdictions
that entered into Model 1 IGA will not need to enter into an FFI agreement with the IRS to be FATCA compliant (but registration
with the IRS still required)
Under Model 2 IGA (Japan, Switzerland, Denmark) the FFI has to enter into an FFI agreement and must report directly to the
IRS
On 13 February 2014
On 13 February 2014 the OECD issued its Common Reporting Standard (CRS)
Main target: creating a global standard in financial and tax relevant exchange of information
Setting up a similar regime to US FATCA
19
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
1. International initiatives
1.2. EU Savings Directive 2003/48/EC
Current regime
Principle : each EU Member State must require paying agents established within its territory to provide
automatically to its tax authorities details of the payment of cross-border interest made to any individual or
residual entity resident or established in another EU Member State (and dependent territories)
Exception: during a transitional period, Luxembourg is allowed not to apply the automatic exchange of
information method but instead levy a WHT (35%), unless the beneficiary of the interest payment has
expressly opted for the exchange of information method
Scope: only applicable to interest income - income from life insurance contracts and structured products
does not fall within the EUSD scope
Bill n6668 : replaces the withholding tax system with the automatic exchange of
information system as from 1 January 2015
20
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
1. International initiatives
1.3. Council Directive 2011/16/EU on Administrative Cooperation
Article 8 of the Directive 2011/16/EU provides for a mandatory automatic EOI between Member States which
will enter into force on 1 January 2015
Limited to 5 categories of income and capital and based on available information regarding taxable
periods as from 1 January 2014
income from employment;
directors fees;
pensions;
life insurance products not covered by other Directives; and
ownership and income from immovable property
The information must be available
Applies to taxes of all kinds with the exception of VAT, customs duties, excise duties and compulsory
social contributions already covered by separate legislation
Based on OECD standards limited to foreseeable relevance of the information
The Directive contains a most favored nation clause question on relationship may arise at FATCAs
implementation
21
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
1. International initiatives
1.4. Multilateral Convention on Mutual Administrative Assistance
Source
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters developed jointly
by the Council of Europe and the OECD in 1988 and amended by Protocol in 2010, both signed by
Luxembourg on 29 May 2013 Article 6 foresees the possibility of an automatic EOI between the
contracting States
Scope
Automatic EOI applies to categories of cases determined by each contracting State in separate mutual
agreements concluded with one or several contracting State(s) automatic EOI not mandatory
Applies to taxes of all kinds (including VAT, excise duties and compulsory social contributions) with the
exception of customs duties
22
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.1. Foreign Account Tax Compliance Act (FATCA)
2.2. EU Savings Directive 2003/48/EC (EUSD)
2.3. Council Directive 2011/16/EU on Administrative Cooperation
2.4. Multilateral Convention on Mutual Administrative Assistance
23
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.1. Foreign Account Tax Compliance Act (FATCA)
Ratification by Luxembourg
IRS and Treasury recently announced a transition period (Notice 2014-33), the Federal
Government intends to delay imposing heavy penalties on banks for now (as long as foreign
authorities believe that banks are acting in good faith ).
UK and GE announced to NOT apply transition period: why ? ( one might be tempted to think
about reciprocity)
24
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.2. EU Savings Directive 2003/48/EC (EUSD)
Entities / legal arrangements outside EU (listed in Annex I of Savings 2.0): look-through approach
Entities / legal arrangements within the EU : obligation to act as paying agent upon receipt of
interest payment from any upstream economic operator as long as the beneficial owner is an individual
resident in another EU Member State
25
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.2. EU Savings Directive 2003/48/EC (EUSD)
Life insurance contracts whose performance is linked to >40% debt income interest/debt income or
equivalent income (covered by the EUSD) and providing for a biometric coverage of less than 5 % of the
capital insured
Structured products income paid or credited to an account, relating to securities of any kind under
which the investor receives:
Interest income obtained from all non-UCITS by individual resident in the EU would be subject to
effective taxation or EOI
Luxembourg SIF or non-UCITS incorporated as SICAV/SICAF should fall within the scope of the EUSD
26
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.3. Council Directive 2011/16/EU on Administrative Cooperation
Draft extended directive (2013): inclusion of all investment income (in addition to the 5
categories of income, out of which member states must choose 3 and exchange info as of
01/01/2016, based on data gathered in 2015)
Last version: only available data to be exchanged ; term now simply dropped
27
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.4. Multilateral Convention on Mutual Administrative Assistance
With respect to categories of cases and in accordance with procedures which they
[countries] shall determine by mutual agreement, two or more parties shall automatically
exchange the information referred to in article 4 .
28
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
2. Outlook
2.4. Multilateral Convention on Mutual Administrative Assistance
(2) Notwithstanding paragraph 1, those Parties which are Member States of the
European Union can apply, in their mutual relations, the possibilities of assistance
provided for by the Convention in so far as they allow a wider co-operation than the
possibilities offered by the applicable European Union rules.
19 June 2014
Luxembourg
30
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Strict rules applicable to any treatment of data = 3 (at the level of the bank, the
sending and the receiving tax administration)
31
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
N 62: Above all, the access by the competent national authorities to the data retained
is not made dependent on a prior review carried out by a court or by an
independent administrative body .
32
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Data protection directive is one of the legal acts of the EU, which is most disregarded
and mistreated by EU politicians
Nobody seems to care about, but the directive has its foundations in the European
Charter of Fundamental Rights, which (entered into force with the Lisbon Treaty in
2009)
33
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Justification and limits must be in the law ! (Art 52 of EU Charter of Fundamental Rights,
see: Digital Rights case, n 38)
34
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Who will come up for the very important damage claims, when AEOI is annulled 8
years after implementation (by banks) ?
35
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Conclusion
Multiple initiatives
Several texts
Legal uncertainty
Increased costs
36
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
37
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Property related services: taxation in the country of the property (Art 47)
38
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
VAT
exempt/taxation
(where ?)
HoldCo
Recharge+VAT?
VAT
recovery ?
Investment
Advisor
VAT
exempt/taxation
(where ?)
Asset
Manager
VAT
exempt/taxation
(where ?)
Fund/PropCo
Recharge+VAT?
15% VAT
cost
15% VAT
cost
Legal /
Set up costs
39
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
taxation in the country of the recipient vs. taxation in the country of the property
Only supplies of services which have a sufficiently direct connection with immovable property come
under Art 47 of the VAT Directive.
As far as the concept of immovable property is concerned, one of the essential characteristics of
such property is that it is attached to a specific part of the territory of the Member State in which it is
located.
In order for a service to come within the scope of Art 47, that supply must be connected to
expressly specific immovable property.
However, in so far as a large number of services are connected in one way or another with
immovable property, it is, in addition, necessary that the services should relate to the immovable
property itself. That is the case, inter alia, where expressly specific immovable property must be
considered to be a constituent element of a service, in that it constitutes a central and essential
element thereof.
40
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
CJEU case regarding the place of supply (RR Donnelley case continued)
The services listed in Art 47, which concern the use or the development of immovable
property, or the management, including the operation and evaluation, of such property, are
characterized by the fact that the immovable property itself constitutes the subject matter
of the service.
41
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
19 June 2014
Luxembourg
If yes: does the term management also cover the actual management of the
companys immovable property, which the company has entrusted to a third party?
In principle, daily management of the property is not VAT exempt (taxation in the country of
the property)
43
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Conclusions
Conflicting VAT principles
No EU harmonisation of the notion of property related services
Risk of double taxation (with no EU arbitrage)
Optimization and management of VAT aspects is of a ever growing
importance
Distinct VAT monitoring for the structuring phase and the operational phase
VAT compliance
New possible developments with the VAT exemption
44
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg
Contact us
Thierry Lesage, Partner
Tel: (352) 40 78 78 328
Email: thierry.lesage@arendt.com
45
Get up to speed with recent tax and VAT developments affecting Luxembourg
19 June 2014
Luxembourg