Luxembourg - Response to BEPS

Luxembourg - Response to BEPS

Luxembourg has actively participated in the OECD BEPS project since its beginning and has made the political commitment to apply the new rules that result from this work. The government continues to stress the need to promote the coordinated implementation of the BEPS Actions at the international level to ensure a level playing field worldwide.

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Luxembourg

The two latest amendments to the EU Parent-Subsidiary Directive made in 2014 — the GAAR and the anti-hybrid rule — were transposed into Luxembourg domestic law,taking effect as of 2016.

Luxembourg has supported the ATA Directive, which theEU Council approved on 12 July 2016. Like all EU countries, Luxembourg must transpose this directive into its domestic law before the end of 2018. As this directive provides only minimal protection for the internal market and lacks detailed guidance, its implementation in Luxembourg will have to be monitored.

Patent box regime

Following discussions at the EU and OECD levels thatled to the BEPS Action 5 report, Luxembourg repealed itsexisting IP regime as of 1 July 2016. A grandfathering rulewas introduced for taxpayers already benefiting from theregime under certain conditions. The government confirmedits willingness to offer a new IP regime that would follow theOECD’s modified nexus approach. Details of the new regimeare expected to be announced in the coming months.

Transfer pricing

Luxembourg enhanced its transfer pricing regulations in 2015 by clarifying the relevant legislation in line with OECD guidelines. Specific documentation requirements were introduced for taxpayers performing transactions between related parties, which highlights the intensifying focus on transfer pricing documentation.

In May 2016, the EU Council adopted a new directive that introduces CbyC reporting requirements at the EU level, inline with the OECD BEPS Action 13 report. The government lodged on 2 August 2016 a draft law transposing this directive into Luxembourg law before the Parliament.The draft law is a lean transposition of the directive, and clear references are made to the BEPS Action 13 report. Master file and local file documentation will need to be prepared in addition to the CbyC report. Master and local file guidelines are expected to be released in the coming months.

Exchange of tax rulings

Like most EU countries, Luxembourg has a well-established practice of tax rulings. Since 2015, the existingruling process has been formalized and modernized. Acentral ruling commission now grants binding rulings inresponse to written requests from corporate taxpayers, provided certain conditions are met and subject to a fee ranging from EUR3,000 to EUR10,000, depending on therequest’s complexity.

Luxembourg has committed to exchange information on tax rulings within the framework of the BEPS Action 5 report. In July 2016, the Luxembourg Parliament approved a bill transposing the provisions of DAC 3 on mandatory automatic exchange of information on tax rulings. Automatic exchange of information on advance cross-border rulings and APAs will commence on 1 January 2017.

Tax treaties

Luxembourg has committed to amend its tax treaties to implement some of the OECD recommendations on BEPSAction 6. In a first concrete application of this commitment, Luxembourg recently negotiated a new treaty with Senegal that adopts some of the minimum standards recommended under BEPS Action 6 (e.g. GAAR, including a principal purpose test).

Luxembourg is also part of the ad hoc group developing themultilateral instrument at the OECD level.

Tax competitiveness

Facing the challenge of maintaining its tax competitiveness, Luxembourg has recently reaffirmed that it will closely follow developments internationally and the transposition of the BEPS measures at the European level in particular. Luxembourg aims to adapt its tax framework to these changes in order to ensure that it remains attractive whiler especting the new international and European standards. Among the measures announced to reinforce the country’s attractiveness, the government is expected to progressively reduce the corporate income tax rate from 21 percent to18 percent, leading to a corporate tax rate (combined with other business taxes) of about 26 percent in 2018. 

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