Tax Sanity Check

Anti Tax Avoidance Directive 1

Five main impacts:

• Interest limitation rules; 
• Controlled foreign Company rules;
• EU hybrid mismatches;
• Exit taxation;
• General anti-abuse rule.

All of the above are already in force in Luxembourg.

Anti Tax Avoidance Directive 2

Two main impacts:

• Hybrid mismatches (applicable to third countries): 
  • Deduction without inclusion;
  • Double deduction;
• Reverse hybrid mismatch.
  

Generally applicable as from 1 January 2020, with the additional "reverse hybrid" applicable from the 2022 tax year.

Directive on administrative cooperation 6 (DAC 6)

• Any transaction involving two countries where at least one is an EU country will need to be reported under certain criteria ("Hallmarks") that could indicate aggressive tax planning;
• The obligation to disclose is on all EU-based intermediaries involved in the arrangement. Under certain conditions, the taxpayer may be obliged to disclose as well.

• Multilateral Convention to Implement Tax Treaty Related  measures to Prevent Base Erosion and Profit Shifting ("BEPS") implements a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises;
• Principal purpose test to be taken into consideration as it may deny treaty benefits.

• Specific circular effective since 1st January 2017;
• This Circular stipulates the importance of adequate substance and of a functional analysis, covering the functions, assets and risks of the transacting parties and their commercial relationship to determine the appropriate equity level.

• The Register of beneficial owner applies to all entities registered in the Luxembourg trade register by compelling them to disclose their beneficial owner(s), or, in default, their senior managing official(s);
• A filing to the fiduciary contract and trust Register is required if one fiduciary or trustee is established or resides in Luxembourg, forms a business relationship in Luxembourg with a professional or acquires real estate in Luxembourg.

• All advance tax agreements issued before 1 January 2015 are automatically to cease to have any legal effect, as from the end of the 2019 tax year;
• Taxpayers affected are explicitly given the right to submit new requests for advance tax confirmations, which will be handled in accordance with the revised tax authority procedures that have applied since 1 January 2015. 

• A bill has been issued to disallow tax deduction of interest or royalties paid / due to related parties, if these are corporate entities established in countries “black-listed” as being “non-cooperative” for tax purposes;
• This EU "blacklis" currently names 12 countries or territories: American Samoa; Cayman Islands; Fiji; Guam; Oman; Palau; Panama; Samoa; Trinidad and Tobago; Vanuatu; US Virgin Islands.