Luxembourg - Response to BEPS

Luxembourg - Response to BEPS

The Luxembourg government fully supports the BEPS project and is actively participating in tax policy discussions at the European and international level. It has also stressed the need to create a level playing field to ensure a fair application of international tax standards and to ensure a coherent implementation of the new tax rules worldwide.

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Luxembourg, as any other jurisdiction, is fighting against unfair tax competition from all countries, including non-European countries. But that debate existed long before the BEPS project was launched, through the impetus of the EU initiatives on tax cooperation and exchange of information that led to the progressive end of the banking secrecy in Luxembourg. Luxembourg has indeed not waited for the current BEPS debate to move toward enhanced transparency in tax matters and implement a number of concrete measures into its domestic law.


Recent developments have shown that Luxembourg is a constructive and active player in the move toward greater transparency in tax matters. For example, Luxembourg specifically promoted the introduction of the automatic exchange of information for tax purposes as a global standard and has, since January 2015, implemented the automatic exchange of information on the basis of the European Savings Taxation Directive.

As far as businesses are concerned, the tax morality debate has not gone unnoticed nor has it been underestimated. They have indeed understood the need to anticipate the changes that are likely to occur in the international tax scene, including the fact that they may have to explain to the tax authorities – and even publicly – their tax strategy and the amount of taxes they are paying worldwide. This is due not only to the fact that new regulations are creating more mandatory disclosure requirements, but also to the increasing public pressure pushing for voluntary reporting.

EU Parent-Subsidiary Directive

In August 2015, the government tabled a bill in the Luxembourg Parliament to transpose into domestic law two recent amendments to the EU Parent- Subsidiary Directive: the general anti- abuse rule and the anti-hybrid rule.

As a result, income deriving from a shareholding that falls within the directive’s scope will no longer be exempt in Luxembourg if it is tax-deductible in another EU member state. In addition, the provisions of the directive will no longer be granted if the transaction may be considered as abusive, based on the directive’s new wording. These provisions will be enacted with effect as from 2016.

IP box regime

Following discussions on IP regimes occurring at the EU and OECD levels (notably within the frame of the OECD’s BEPS Action 5 report), the Luxembourg government confirmed its willingness to modify the current Luxembourg IP regime in order to follow the ‘modified nexus approach’ as requested by the OECD. The legislative process to modify the Luxembourg domestic law is expected to start before the end of 2015.

Transfer pricing

Luxembourg recently enhanced its transfer pricing regulations, fully in line with OECD guidelines by clarifying the relevant legislation. Furthermore, a specific provision on the documentation requirements for taxpayers performing transactions between related parties has also been introduced into the Luxembourg tax law, showing the high amount of attention being given to transfer pricing documentation.

Tax rulings

As most EU countries, Luxembourg has a well-established practice of tax rulings. Since 2015, the existing ruling process has been formalized and modernized. One of the main features of this enhanced framework is the establishment of a central ruling commission that will provide binding rulings in response to written requests made by corporate taxpayers, provided that certain conditions are met and subject to a fee of EUR3,000 – 10,000, depending on the complexity of the request.

Furthermore, in line with the global trend toward increased transparency, Luxembourg’s direct tax authorities will publish a synthetic and anonymized summary of the rulings in their annual activity report.

Since the beginning of the OECD's work, Luxembourg has been an active participant and has made the political commitment to apply the new regulations that will result from these discussions. However, Luxembourg is also expected to take a pragmaticapproach to implementation, and, unlike some other countries, has generally taken the approach of not moving unilaterally when it comes to anti-BEPS regulations. The government has indeed always stressed the need to promote a coordinated implementation of the BEPS actions at the international level to ensure a level playing field worldwide. Meanwhile, the government is working on a comprehensive tax reform for 2017 that will take into account some of the BEPS recommendations while ensuring a competitive tax framework, in line with the international tax rules.

Preparing for a post-BEPS environment

Many multinational groups with a strong EU presence have already taken steps to address the new anti-hybrid and general anti-abuse rules recently implemented at EU level.

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