Circular L.G. - A n°64 of 7 May 2018 on counter-measures in relation with non-cooperative tax jurisdictions issued
According to the Circular, tax authorities will particularly focus on transactions with associated enterprises in the meaning of article 56 of the Income Tax Law that are located in a non-cooperative tax jurisdiction. As from tax year 2018, companies will have to disclose in their tax return if they have entered into transactions with associated enterprises located in such jurisdictions. Details of the transactions must be provided upon request of the tax administration.
Circulars on virtual currencies
On 26 July 2018, the Administration for Direct Taxes released Circular L.I.R. n°14/5 - 99/3 - 99bis/3, which purpose is to clarify the tax treatment of income generated by a virtual currency, particularly in the context of disposal transactions or the creation of such virtual currencies. On 11 June 2018, the Luxembourg VAT Authorities also issued an administrative Circular confirming that transactions on virtual currencies are VAT exempt. The application of the VAT exemption is however conditional on the purpose/use of the virtual currency.
New law on access to information on anti-money laundering
The law of 1 August 2018 grants tax authorities the access to information on anti-money laundering in the framework of European and international administrative cooperation, as foreseen by the relevant laws.
New law on information to be obtained and maintained by trustees
Law of 10 August 2018 on information to be obtained and maintained by fiduciaries has been published in the Memorial A N°708 of 21 August 2018. The provisions relating to the establishment of a central register of trusts have been removed from the initial draft law and are dealt with in a separate law which is still pending before Parliament.
"On 20 March 2018, the new Luxembourg-France Income Tax Treaty and a new protocol were signed by the Governments of France and Luxembourg."
Draft law transposing EU Anti-Tax Avoidance Directive
The draft law implementing the EU Anti-Tax Avoidance Directive (ATAD) was introduced in the Luxembourg Parliament. The ATAD establishes minimum standards with respect to five areas: (i) limitation to interest deductibility; (ii) exit taxation (including provisions relating to inbound transfers); (iii) a General Anti-Abuse Rule (GAAR); (iv) Controlled Foreign Company (CFC) rules; and (v) rules countering hybrid mismatches within the EU. In addition, the draft law introduces a provision in relation with the recognition of foreign permanent establishments under a tax treaty and abolishes the tax neutral conversion of loans into shares.
Draft law approving Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS published
On 3 July 2018, the Luxembourg Government submitted the draft law ratifying the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), which was signed on 7 June 2017, to the Luxembourg Parliament. The list of tax treaties in force that Luxembourg would like to designate as Covered Tax Agreements, i.e., to be amended through the MLI, as per the Draft Law corresponds to the list submitted at the time of signature of the MLI. The Draft Law also confirms the partial or full reservations against a number of the articles of the MLI that Luxembourg made at the time of the signature of the MLI, as well as the options chosen by Luxembourg where the provisions of the MLI allowed for a choice to be made.
Update on double taxation treaties
On 20 March 2018, the new Luxembourg-France Income Tax Treaty and a new protocol were signed by the Governments of France and Luxembourg, replacing the current double tax treaty signed on 1 April 1958. The new treaty is based on the 2017 OECD Model Tax Convention, and contains significant changes including provisions to meet OECD standards, the definition of tax residency, and the withholding tax treatment of dividend distributions. On 19 September 2018, the Minister of Finance Pierre Gramegna and S.E.M. Samuel Otsile Outule, ambassador of the Republic of Botswana in Luxembourg, signed a double tax treaty between Luxembourg and Botswana. The new treaty comprises the Base Erosion and Profit Shifting (BEPS) standards and foresees a provision on exchange of information.
John Hames, Partner
Elmar Schwickerath, Partner
New law on VAT group regime
On 26 July 2018 the Luxembourg Parliament voted and adopted a law introducing the VAT group regime in Luxembourg. It is an optional regime, meant to alleviate the VAT burden on supplies made between members of a VAT group, active in all sectors of the economy, and to help maintain Luxembourg’s competitiveness as a financial center. The new optional regime comes into force for businesses as of 31 July 2018. The VAT group is seen as one taxable person for VAT purposes with the consequence that the intra group transactions are disregarded for VAT, leading to a possible VAT saving, enhancement of VAT recovery position and/or cash flow improvement. From a reporting point of view, VAT returns in the name of the VAT group will only be due, rather than returns in the name of each member. A VAT group can only be created between Luxembourgish entities and should be in place for a minimum of 2 years.
Yannick Zeippen, Indirect Tax Leader
Jacques Verschaffel, Associate Partner
"On 26 July 2018 the Luxembourg Parliament voted and adopted a law introducing the VAT group regime in Luxembourg."