Directors’ Remunerations to be Addressed in 2017 Tax Reform

Following the recent discussion on diverging practices in the tax treatment of directors’ remunerations and discussion on potential legislative and regulatory changes that could affect the tax treatment of directors' remuneration, the management committee of the Institut Luxembourgeois des Administrateurs asbl (ILA) - which promotes the profession of Directors - has confirmed that directors’ remunerations are to be addressed in the 2017 Luxembourg tax reform.

Background

In 2014 the ILA set up a working group dedicated to such topics. This working group includes among others experts from Deloitte, EY, KPMG and PwC. The findings of this working group have been presented to ILA members on a regular basis and particularly at the Directors’ Day in December 2014.

In addition, the ILA made contact with the Minister of Finance in early 2015 to submit its arguments for a clear and fair tax treatment for all directors, whatever the form in which they carry out their mandates. The ILA recorded that relevant representatives of the Ministry of Finance were very receptive to its arguments, especially also as a potential revision or realignment of the tax treatment of directors’ remunerations (whether indirect taxation (VAT) or direct taxation (withholding tax, tax deductibility for the company paying such remunerations), was to be an integral part of the planned tax reform. Its interaction with the representatives of the Ministry of Finance are ongoing.

Confirmation

The ILA has stated that the Minister of Finance has confirmed that any clarifications concerning the tax treatment of directors’ remunerations (whether indirect taxation (VAT) or direct taxation (withholding tax, tax deductibility for the company paying such remunerations), will be an integral part of the upcoming tax reform and will as such become effective at the earliest on 1 January 2017.

Promotion

The ILA promotes best practices in Luxembourg in the field of Corporate Governance of companies and institutions notably by providing for high quality training, forum discussion, research, publications and conferences. ILA is the first interlocutor in Luxembourg on issues affecting Directors and play an important role at the European level.

For further details, see www.ila.lu.