On 13 May 2015, the second edition of Fiduciaire Générale de Luxembourg (FLG)'s annual tax update conference brought together representatives from local Small and Medium Enterprises and Small and Medium Industries (SME/SMI) to discuss hot topics and recent changes in the Luxembourg tax environment; in this year’s edition, tax experts and global employer services professionals focused on the following topics:
• BEPS
• Automatic Exchange of Information
• Advance Tax Decision process
• Transfer Pricing
• Cross-border workers: Belgian-Luxembourg double tax treaty
International tax—a view from Luxembourg
The current international tax environment is undergoing major change. One of the key topics in this process is OECD’s Base Erosion and Profit Shifting (BEPS) initiative. The BEPS project comprises 15 actions. Most multilateral and multinational institutions are currently investigating how to best adapt to the BEPS action plan which is currently not yet finalised.
On the one hand, the draft BEPS recommendations require the establishment of coherence in corporate taxation. Coherence can only be achieved if decision makers turn tax policies into tax rules. On the other hand, restoring the effects of international standards appears to be crucial when it comes to creating a favorable international tax environment. Moreover, tax authorities have to ensure transparency while promoting predictability.
The automatic exchange of information has emerged as an important global matter over the past years. The international community is facing the worldwide implementation of the FATCA Intergovernmental Agreements (IGAs), imposing automatic exchange of information on a bilateral basis between the United States and collaborating states. Another example is the OECD Common Reporting Standard (CRS), which is based on the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters, as amended by a 2010 Protocol. More than 80 jurisdictions will participate in this OECD initiative, out of which around 50 jurisdictions already announced their (intended) implementation dates for CRS reporting.
At a European level, automatic exchange of information is being introduced by an EU directive amending an already existing directive on administrative cooperation in the field of taxation. Luxembourg will apply CRS reporting in 2017, concerning calendar year 2016. Partly due to its similarities to FATCA, it is likely that the CRS will have a broad impact in many jurisdictions. CRS will not only affect banks, life insurance companies and funds, but also certain holdings as well as investment companies with reporting obligations. CRS will require reporting on all types of financial income including interest, dividend and capital gains.
Covering the recent changes in the ruling environment, the FGL speakers focused on the current challenges and revealed concrete solutions as for how to move forward. The EU Commission stated that tax rulings are unproblematic as such and hereby confirmed the ruling mechanism. Luxembourg intends to remain attractive through the following approach:
• Since 1 January 2015, the ruling practice has been legally formalised into national law
• The tax authorities will publish a yearly activity report and thereby guarantee more transparency
• The tax authorities will maintain close and regular contact with the local business community
• Budget 2015 aims to attract new investments
Transfer pricing (TP) is one of the most important topics in international tax. Transfer pricing occurs whenever two legal entities that are part of the same multinational group trade with each other. With precision, the FGL experts analysed the OECD standards’ key elements such as the arm’s length principle, the upward TP adjustment, the associated enterprise, the comparability analysis, methods of the guidelines, documentation requirements, and penalties.
Cross-border workers—who pays what and where?
Under the CRS, governments are able to implement an automatic exchange of information with other OECD Member States. The directive 2011/16/EU aims to strengthen administrative cooperation at EU level. As of 1 January 2015, for the period from 1 January 2014 onward, Luxembourg will automatically provide information to the other EU Member States on the following types of income: salaries, director fees, pensions and annuities. In Luxembourg, employers had to file electronically - information related to the year 2014 by 28 February 2015, including the number of days physically worked abroad and the portion of the exempted income. The key challenges and priorities for Luxembourg-based employers include:
• Ensuring a proper gathering and transmission of correct data to the local tax authorities
• Adapting their existing processes to meet the new requirements
• Being aware of any potential tax and social security impact
With regards to Luxembourg’s bordering countries, different rules apply. Belgium has a 24-day tolerance, which enables Luxembourg employees to work up to 24 days per year abroad, and still tax 100% of their income in Luxembourg. For employees working more than 25 days per year outside of Luxembourg, the remuneration for non-Luxembourg working days is taxable in Belgium from day one onwards. Germany, however, has only 19 days of tolerance, and France has no tolerance system at all. However, as long as the amount of working days in France is inferior to 183 days per year and the employees’ remuneration was not paid by a French entity, the remuneration is taxable in Luxembourg.
