Coherence, substance, and transparency were at the top of the agenda on 22 October, as tax specialists from Europe and the United States gathered at KPMG’s headquarters in Kirchberg to discuss the OECD’s final BEPS reports and their expected impact in Luxembourg. Before an audience of over 150 industry specialists, Flora Castellani (Director, KPMG Luxembourg) outlined that in a post-BEPS environment, the question is not to know if Luxembourg will implement BEPS, but rather when and how.
Developing this point, Louis Thomas (Partner, KPMG Luxembourg) explained that the Luxembourg government recently issued a bill to phase out the current Luxembourg IP regime in order to be compliant with the BEPS measures.
KPMG Partner Pierre Kreemer emphasised, in particular, the issues arising on the topic of economic substance, which is one of the key pillar of the OECD BEPS initiative:
"It’s an evolving and transversal topic with several definitions in play. Following the OECD’s recommendations, certain players might increase substance, while others could opt for a different business model and outsource more instead, while keeping a limited number of senior executives having an active oversight role. Whilst tax is certainly part of the equation supporting any business case anywhere, it must not be the main criteria."
However, according to Mr. Kreemer, the difficulty lies in assessing the level of substance that a company needs, as rules will probably vary in different countries.
Sébastien Labbé (Partner and Head of Tax, KPMG Luxembourg) explained:
"There is not only the political will to address BEPS issues, but also a strong agreement among many countries to implement the different actions that will, at the end of the day, help them ensure that profits are taxed where economic activities are performed and where the value is created—which is the OECD’s main objective." What will be key for businesses going forward is therefore to monitor how countries are actually implementing the BEPS recommendations.
With additional speakers from Germany (Dirk Niedling, Partner, KPMG Germany), Switzerland (Sébastien Maury, Director, KPMG Switzerland), and the United States (Fred Gander, Principal Tax, KPMG USA), a variety of perspectives were brought from both inside and outside the EU. All agreed that maintaining the status quo would not be an option. Mr Gander brought a North American view to the conference, stating that certain areas of BEPS held more significance than others across the Atlantic: "What the US was hoping to get out of the OECD’s recommendations was some interest deductibility limitations, country-by-country reporting, and the mutual agreement initiative." These particular areas, he pointed out, are related to the fact that, in recent years, base erosion of the US system has been of rising concern.
Sébastien Labbé concluded that, for Luxembourg, BEPS may represent more opportunities than challenges, explaining that “the debate will indeed focus on how to remain competitive while also complying with the new international standards. A recurring proposal is to significantly decrease the corporate income tax rate, which is particularly key in the context of the Luxembourg 2017 tax reform.”
For more on BEPS, including an analysis of what the changes will mean for investment funds, visit our BEPS blog at http://blog.kpmg.lu/tag/beps/