Luxembourg Tax Alert 2016-03 | KPMG | LU

Luxembourg Tax Alert 2016-03

Luxembourg Tax Alert 2016-03




KPMG in Luxembourg


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MCAA on Country-by-Country reporting signed by Luxembourg

On Wednesday 27 January 2016, Ministers and top tax officials from more than 30 countries, including Luxembourg Finance Minister Pierre Gramegna, signed an international agreement at the OECD that will significantly advance the fight against corporate tax avoidance.

This was the first signing ceremony in order to facilitate automatic exchange of Country-by-Country (“CbC”) reporting called for in the OECD/G20 Base Erosion and Profit Shifting (“BEPS”) Project. It is an important element of the “level playing field” in international tax, as mentioned in the press release announcing the signature issued by the Luxembourg Ministry of Finance on 26 January 2016.

The Multilateral Competent Authority Agreement (“CbC MCAA”) signed this week must not be confused with the Multilateral Competent Authority Agreement signed in Berlin on 29 October 2014 in the context of the Common Reporting Standard (“CRS”), which is also referred to as the “MCAA” (now rather the CRS MCAA to distinguish it from the CbC MCAA).

The two topics are obviously related and have a common objective, which is to promote tax transparency at a global level. Indeed, whereas the CRS MCAA is about combating tax evasion from individuals, the CbC MCAA will contribute to increase tax transparency with respect to corporate tax payers.

In the press release issued by the Luxembourg Ministry of Finance, the signature of the CbC MCAA is clearly mentioned as being incorporated within the framework of the various steps taken by the country to adhere to the highest standards on exchange of information, tax transparency and fairness in tax matters.

As it had been for the CRS, with the signature of the CRS MCAA on 29 October 2014, Luxembourg again ranks among the early adopters of the CbC MCAA.

The CbC MCAA will enable a consistent and swift implementation of new transfer pricing reporting standards developed under Action 13 “Country-by-Country Reporting Implementation Package” of the BEPS Action Plan.

Action 13 mainly focuses on transfer pricing documentation and CbC report. This guidance will ensure more transparency for tax administrations while providing a complete understanding of the way multinational enterprises (“MNEs”) structure their operations. The confidentiality of such information will be safeguarded.

As a reminder, the OECD Action 13 report involves a three-tiered standardized approach to transfer pricing documentation, the CbC report being one of these three elements. Indeed, this standard consists of (i) a master file containing standardized information relevant for all MNE group members; (ii) a local file referring specifically to material transactions of the local taxpayer; and (iii) a CbC Report containing certain information relating to the global allocation of the MNE group’s income and taxes paid together with certain indicators of the location of economic activity within the MNE group:

  • CBC reporting: requires MNEs to report annually and for each tax jurisdiction in which they do business the amount of revenue, profit before income tax, income tax paid and accrued along with their total employment, capital, retained earnings and tangible assets;
  • Master file approach: all these information collected by MNEs need to be provided to tax administrations in a “master file” that would be available to all relevant country tax administrations; and
  • Local file approach: more transactional transfer pricing documentation has to be provided in a local file in each country, identifying relevant related party transactions, the amounts involved in those transactions, and the company’s analysis of the transfer pricing determinations they have made with regard to those transactions.

As announced earlier this month by Commissioner Moscovici, the EU Commission’s package to be presented on 28 January 2016 is expected to entail also a proposal to implement CbC reporting to the local tax administrations (i.e. implementation of the OECD recommendations on BEPS).


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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.

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