tax update october 2010

Transcription

1 tax update october 2010

2 Summary Luxembourg news 3 International news 6 Useful information 7 Double tax treaties network 7 VAT 7 2

3 Luxembourg news Bill of 26 July 2010 introducing new tax measures On 26 July 2010, the Luxembourg government introduced a new bill (No. 6166) before the Luxembourg Parliament (Chambre des Députés). The bill implements the tax measures that had previously been announced by the Prime Minister during his annual speech on the state of the nation (please refer to our tax update of July 2010 which can be downloaded at The tax measures concern both individuals and corporations and, in the field of business taxation, the main amendments may be summarised as follows: - increase of the special depreciation allowance rate from 60% to 80% for investments aimed at protecting the environment or saving energy; - increase of the investment tax credits by 1%, such that the tax credit for the global investment is 7% for qualifying investments up to EUR 150,000 and 3% for the excess, while the tax credit for the supplementary investment is 13%; - introduction of a minimum lump-sum tax (EUR 1,500) per annum for those taxpayers subject to corporate income tax (impôt sur le revenu des collectivités) whose financial assets (including transferable securities, receivables and bank deposits) exceed 90% of their total assets and which are exempt from the requirement of a business license or the approval of a supervisory authority; - increase of the solidarity surcharge from 4% to 5% for companies, resulting in a net increase of 0.21% of the corporate income tax rate and leading to a maximum aggregate corporate income and municipal business tax rate (impôt commercial communal) of 28.80% in the municipality of Luxembourg; - limitation of the tax deductibility of redundancy payments to EUR 300,000. The bill is expected to pass before the end of the year, becoming applicable as from 1 January Bill of 6 August 2010 implementing the European UCITS IV Directive On 6 August 2010, the Luxembourg government introduced a bill (No. 6170) before the Luxembourg Parliament for the implementation into domestic law of the Level 1 provisions of the European Directive 2009/65/EC dated 13 July 2009 relating to UCITS IV (the UCITS IV Directive ). Apart from introducing the new regulatory measures regarding the European passport for management companies, cross-border mergers of UCITS in the EU, cross-border master/feeder structures and the key information document (please refer to our newsflash of 16 August 2010 which can be downloaded at the bill also includes several tax measures. The new tax provisions seek to remove the existing tax barriers in order to ensure a seamless application of the UCITS IV Directive, thus strengthening the attractiveness of Luxembourg as a prime location for investment funds. The new tax measures may be summarised as follows: - UCI established outside Luxembourg whose central administration or effective place of management is located in Luxembourg are exempt from corporate income tax, municipal business tax and net worth tax (impôt sur la fortune). Accordingly, foreign funds do not become subject to Luxembourg taxation due to the fact that they are managed by a Luxembourg management company; - capital gains realised by non-resident investors upon the disposal of shares held in a Luxembourg UCI in the form of an investment company (SICAV or SICAF) are no longer subject to Luxembourg income tax, even if realised on a substantial participation within the first 6 months; - exchange traded funds are exempt from subscription tax (taxe d abonnement); - the existing exemption from subscription tax for pension funds is extended to multi-employer pension pooling funds where several employers provide pension benefits to their employees. The bill is expected to pass before the end of the year, becoming applicable as from 1 January New Luxembourg developments on the transfer of carbon emission rights On 2 July 2010, Luxembourg adopted a law implementing European Directive 2010/23/EU as regards an optional and temporary application of the reverse charge mechanism in relation to supplies of certain services susceptible to fraud. The law entered into force on 1 July Carbon emission rights, pointed to as highly affected by fraud, constitute the target of such provision. As from the 1 July 2010, in case of supplies of services related to the transfer of allowances, of 3

4 emission reduction units or certified emission reductions, the person liable for the payment of VAT is the recipient of the services, even in case of local supplies. In other words, the service provider has to issue its invoices without application of VAT, regardless of where the recipient is established. The Luxembourg VAT return forms have been amended accordingly to include the application of the reverse charge in case of local supplies. Circular Letter on the abusive carry-forward of losses (Mantelkauf) On 2 September 2010, the head of the Luxembourg Tax Authorities (Administration des contributions directes) issued Circular Letter L.I.R No.114/2 (the Circular Letter ) on the abusive carry-forward of losses in case an existing company carrying losses undergoes significant changes (Mantelkauf). The Circular Letter follows the final decision of the administrative court of appeal (Cour Administrative) of 15 July 2010 (case No ) in a litigation regarding the interpretation of Article 114(2)3 of the amended Luxembourg income tax law dated 4 December Said provision restricts the indefinite carry-forward of losses to the person who has actually suffered these losses. The court of appeal decided that significant changes to a company do not affect its right to carry forward its losses, as long as its legal personality remains unchanged, except in case of an abuse of law (abus de droit). According to the court, an economic analysis needs to be carried out in order to determine whether a given case constitutes an abuse of law. Such is the case in particular when the fiscal or legal personality of the company is used for the sole purpose of benefiting from the carry forward of the tax losses (in the case at hand, the abuse of law was not upheld). The court s decision deviates from an earlier judgment (case No dated 6 July 2009) from the lower administrative court (Tribunal Administratif) which considered that the condition concerning the identity of the person who carries forward losses and the one who suffered these losses had to be determined from a legal point of view and not from an economic one (please refer to our tax update of October 2009). The Circular Letter follows the court s reasoning that an economic analysis needs to be carried out in order to determine whether the operation constitutes an abuse of law. The Circular Letter further specifies that the fact that the change of any or all of the shareholders of the company does not affect the right of the company to carry forward its losses as long as its economic activities are carried on, even if the scope of its corporate purpose is extended. The right to carry forward losses must nevertheless be refused if it is concluded that the operation constitutes an abuse of law, which is the case if the company is used for the sole purpose of benefiting from the carry forward of the tax losses. This may be the case, depending on the circumstances, e.g. when the net assets at the time of the purchase of the company have no effective economic value or when the transfer of the company s shares and any change of activities intercede in concomitant lapse of time. Case No dated 15 June 2010 Legality of the contributions to the Chamber of Commerce On 15 June 2010, the administrative court of appeal rendered its decision regarding the legality of the contribution to the Chamber of Commerce ( CoC ). Pursuant to a former case law (in particular, Case dated 24 October 2007 confirmed by Case C dated 17 April please refer to our tax update dated July 2008), the contributions to the CoC for 2007 and earlier years were held illegal due to the absence of the necessary Grand-Ducal decree to implement the levy of said contributions foreseen by a law of 24 April 1924 (the Law ). As a consequence of these decisions, a Grand-Ducal decree was adopted on 21 December 2007 (the Decree ) in an emergency procedure without the usual mandatory prior consultation of the State Council. The administrative court of appeal ruled in its decision dated 15 June 2010 that the contributions to the CoC for 2007 and subsequent years based on the Decree were also illegal. According to the court, the use of the emergency procedure without the prior consultation of the State Council was not justified, given that no appropriate decree had been taken since the adoption of the Law in This decision has been confirmed by several following decisions of the court and it is expected that many Luxembourg companies will challenge contributions to the CoC. It has to be noted that in order to be valid, a relevant claim must, as a rule, be introduced within three months following the receipt of the assessment notice. Case No C dated 29 June 2010 Invalid notice of assessment from the Chamber of Commerce On 29 June 2010, the administrative court of appeal rendered its decision regarding the validity of an assessment notice of the contribution to the Chamber of Commerce ( CoC ). In the case at hand, a company challenged before the lower administrative court the validity of a reminder notice of its CoC s contribution assessment that was issued after the introduction of the Grand- Ducal decree of 21 December 2007 (the Decree please see above). The company considered that the principle and the amount of the contribution had been 4

5 established before the year 2007 in accordance with article 37bis of the law of 4 April 1924 which refers to the penultimate fiscal year. As the Decree was not enacted when the contribution was established, the company challenged the validity of the assessment notice. The CoC further claimed that the company s request was invalid given that it had been introduced after the expiration of the three-month time limit as from the notification of the assessment. On 25 January 2010, the lower administrative court firstly decided that since the CoC failed to prove that the initial assessment had been effectively delivered, only the reminder notice had to be taken into account for the purposes of the admissibility of the request within the three-month time limit. Since the request was introduced within three months as from the notification of the reminder notice, the request had been validly introduced. The court secondly confirmed that the principle and the amount of the contribution had been established before the Decree was enacted and, even if the reminder notice had been issued after the Decree was taken, only the legal situation existing at the moment of the establishment of the assessment had to be considered. Accordingly, the initial assessment was illegal. Upon appeal by the CoC, the Luxembourg administrative court confirmed the lower court s reasoning as to the admissibility of the request and added that the fact that the company actually paid the contribution could not be considered as a renunciation to its right to challenge the assessment. The administrative court of appeal further confirmed the invalidity of the assessment but stated that the validity of the assessment had to be appreciated at the moment of the issuance of the initial notice. Case No dated 15 July 2010 Interest to appeal against a tax assessment reversal of the burden of proof as to the capacity of beneficial owner On 15 July 2010, the lower administrative court rendered a decision on the burden of proof for the determination of the beneficial ownership of a company. In the case at hand, a Luxembourg company had provided its managing director with a company car, which the tax authorities qualified as non-deductible hidden profit distribution. The company challenged the relevant tax assessments before the head of the Tax Authorities, arguing there was no shareholding relationship between the managing director and the company and that, therefore, the expenses in relation with the car put at the managing director s disposal had to be considered as a tax deductible benefit-inkind to an employee. The head of the Tax Authorities concluded that the company had no interest to appeal against the tax assessment for the year 2004, absent any tax liability arising therefrom, since the company was still in a loss position after the reassessment. The court confirmed this conclusion, deciding that an incorrect tax assessment which does not lead to any tax liability may only be challenged for an incorrect determination of the losses carried forward or the tax credits available in a subsequent year, in case the tax assessment for that year results in an effective tax liability. In relation to the tax assessments for the years 2002 and 2003, the head of the Tax Authorities came to the conclusion that there was no sufficient evidence that the car was exclusively used for professional purposes (e.g. a logbook). Consequently, it was assumed that the car had also been made available to the managing director for private purposes. In addition, the tax authorities assumed that the managing director was a shareholder, since the shares of the company were issued as bearer shares, the records of the general meetings could not identify the shareholders and beneficial owners and the company could not produce any evidence to sustain that the managing director was neither a shareholder nor an effective beneficial owner of the company. This reasoning reversed the burden of proof by requiring the taxpayer to produce evidence against the allegations of the tax authorities. The court, however, confirmed the tax authorities position and dismissed a statement of a person certifying his shareholding as sufficient evidence. Accordingly, the relevant car expenses were considered to be a nondeductible hidden profit distribution. Case No dated 7 July 2010 Qualification of the surface right (droit de superficie) cumulative submission to VAT and proportional registration duties On 7 July 2010, the Luxembourg lower civil court (Tribunal d arrondissement) rendered a judgment regarding the submission to proportional registration duties of a contract conceding a surface right, while such contract has already been subject to VAT. In the case at hand, a surface right had been conceded for a period of 40 years by a landowner (tréfoncier) granting the right to the beneficiary (superficiaire) to act as a property owner on the buildings and plants constructed thereon. The parties had jointly opted for the submission of the transaction to VAT, as is possible under Luxembourg law. Despite of this election for the VAT regime, the Luxembourg Indirect Tax Authorities (Administration de l enregistrement et des domaines) submitted the registration of the concession agreement to registration duties. The parties challenged the levy of registration duties on the grounds that a concession 5

6 of surface right was an innominate contract, subject to a fixed registration duty of EUR 12. The court rejected the parties argument and held that the surface right is a genuine ownership right on the surface land and buildings constructed thereon. As such, its concession is subject to registration duties as any other transfer of immovable property. Since the non-cumulative principle of registration duties and VAT only applies to movables, the court held that the submission of the concession to VAT does not prevent the levy of registration duties which have consequently been correctly applied. International news Council adopts simplified rules for VAT invoicing On 13 July 2010, the EU Council adopted a directive aimed at simplifying VAT invoicing requirements, in particular as regards electronic invoicing. The aims of this directive are to increase the use of electronic invoicing, reduce the related burdens placed on businesses, support small and medium sized enterprises and help Member States to tackle fraud. The provisions of the new directive shall ensure the acceptance by the tax authorities of e-invoices under the same conditions as for paper invoices and remove legal obstacles to the transmission and storage of e-invoices. The new directive also comprises measures to help tax authorities ensure that tax is paid so as to better tackle VAT fraud. These include establishing deadlines for the issuance of invoices, thus enabling speedier exchange of information on intra-eu supplies of goods and services. C-368/09 and C-188/09 Right of VAT deduction Penalties On 15 July 2010, the European Court of Justice ( ECJ ) rendered its judgment in a case where the ECJ was asked to determine whether the national legislation penalising an error in the invoice by loss of the right of input VAT deduction was in line with EU legislation. The ECJ held that a national legislation goes against the VAT Directive where it denies a taxable person the right to deduct the VAT due or paid in respect of services supplied to him from the VAT which he is liable to pay, on the grounds that: - the initial invoice, in the possession of the taxable person when the deduction is made, contained an incorrect completion date for the supply of services; and - the numbering of the subsequently corrected invoice and the credit note cancelling the initial invoice were not sequential. In another case (C-188/09 dated 29 July 2010), the ECJ ruled that the VAT Directive does not preclude a Member State from imposing a temporary restriction on the extent of the right of taxable persons who have not complied with a formal requirement to keep accounting records of their sales to deduct input tax paid. In that case, the restriction applied by the Member State was about 30% of the right of VAT deduction. European Commission publishes Taxation Paper No. 23 on Innovative financing at a global level On 10 September 2010, the European Commission published taxation paper No. 23: Innovative Financing at a global level (the Paper ). The Paper lists and analyses the merits of non-traditional ways of raising additional public finances currently needed by many countries. The Paper focuses on three main themes. The first theme relates to different types of taxes that could be imposed on the financial sector (Tobin-like taxes, taxation of bonuses, etc). The second theme relates to green levies, such as taxes on emissions of carbon dioxide. Finally, the Paper examines innovative financing related to development. For each type of innovative financing, the Paper estimates the potential revenues for the countries and the macro-economic effects on market stability and efficiency. Not surprisingly, the Paper concludes that the countries must coordinate at a global (or at least European) level in order to efficiently collect the proceeds and avoid geographical circumventions. Consultation on possible approaches to tackling cross-border inheritance tax obstacles within the EU Due to the increasing number of complaints about cross-border inheritance tax issues within the Internal Market and referrals to the ECJ, the European Commission launched a public consultation to obtain views from all interested parties on the extent of the issue and ideas on possible solutions. In this regard, the European Commission published on 28 August 2010 an external study which addresses the question of the compatibility of Member States domestic 6

7 inheritance tax rules with Community law (in particular, the free movement of capital) and the double inheritance taxation within the EU. The study enumerates mechanisms to eliminate double inheritance taxation such as the inclusion of inheritance and estate taxes in the bilateral income tax treaties or the development of an EU Model Convention instead of the current OECD Model. For further information, please refer to the European Commission s website: tations/tax/2010_06_inheritance_en.htm - the protocol on the exchange of information concluded by Luxembourg with Austria entered into force on 1 September 2010; - the protocols on the exchange of information concluded by Luxembourg with Sweden and Portugal have been signed on 7 September 2010; - a new tax treaty between Luxembourg and Panama has been signed on 7 October 2010, in order to implement the internationally agreed tax standards on transparency and exchange of information developed by the OECD. Useful information VAT Double tax treaties network Within the last 3 months, the following developments of the Luxembourg double tax treaty network have occurred: - the protocol on the exchange of information concluded by Luxembourg with Spain entered into force on 16 July 2010 (applicable as from 1 January 2011). According to the subsequent exchange of letters between the Luxembourg and Spanish governments, Luxembourg companies have been removed from the Spanish tax haven list as of the entry into force of the protocol; - On 1 September 2010, the Indirect Tax Authorities issued an information note informing all tax payers that as from 2011, they will stop the sending by post of the VAT forms. - The EU Council voted unanimously to extend the EU deadline for the refund of VAT for 2009 invoices to taxable persons established in another Member State from September 2010 to March The extension has been granted to compensate for implementation delays and technical problems in many EU Member States. 7

8 This Tax Update of Arendt & Medernach is designed to provide our clients with information on recent developments of important fiscal areas. Published comments are not intended to constitute tax advice and do not substitute for the consultation with tax counsel required before any actual undertakings. For further information please contact: Eric Fort, Partner eric.fort@arendt.com Thierry Lesage, Partner thierry.lesage@arendt.com Bruno Gasparotto, Principal bruno.gasparotto@arendt.com Alain Goebel, Partner alain.goebel@arendt.com LUXEMBOURG BRUSSELS DUBAI 14, rue Erasme L-2082 Luxembourg LUXEMBOURG Rue d'arlon 92 B-1040 Brussels BELGIUM Dubai International Financial Centre Level 3, Gate Village 10 P.O. Box , DUBAI, UAE HONG KONG LONDON NEW YORK Suites , 37th Floor Jardine House, 1 Connaught Place Central, HONG KONG 46 Gresham Street London EC2V 7AY UNITED KINGDOM 1 Rockefeller Plaza Suite 1405 New York, NY USA in alliance with DILLON EUSTACE DUBLIN 8