Annual International Bar Association Conference Tokyo. Recent Developments in International Taxation. Luxembourg. Marc-Antoine Casanova

Transcription

1 Annual International Bar Association Conference 2014 Tokyo Recent Developments in International Taxation Luxembourg Marc-Antoine Casanova OPF Partners [NTD - Current draft covers developments as at 11 June 2014] 1

2 1. EXCHANGE OF INFORMATION 1.1. EXCHANGE OF INFORMATION ON REQUEST As a result of its rating as non-compliant with the international standards in terms of transparency and exchange of information for tax purposes in the 22 November 2013 peer review report of the Global Forum on Transparency and Exchange of Information, Luxembourg has reviewed and improved its legislation on exchange of information on request. Luxembourg s main actions in this framework have been: The issuance, on 31 December 2013 by the Luxembourg tax authorities of a circular letter 1 and the submission on 10 April 2014 by the Luxembourg government of a bill 2 on the procedure of exchange of information on request aiming at reducing the room for maneuver of the Luxembourg tax authorities in the treatment of the foreign information requests inter alia by limiting their control of the requests to a formal control, their use of the concept of foreseeable relevance and their possibilities to ask further information on or challenge the facts sustaining the information requests. The introduction of a bill 3 on the bearer shares regime. This bill will introduce, if enacted, a share deposit mechanism ensuring at all times the availability of the information regarding the identity of the bearer shareholders. The continuation of the process of extension of Luxembourg s network of international conventions in line with international standards: o Luxembourg has increased the number of its double tax treaties with, inter alia, treaties with Andorra, Singapore (new treaty) and Uruguay and protocols with Denmark and Ireland signed or initialed and the entry into force of treaties with Germany, Kazakhstan, Laos (applicable as from 1 January 2015), Macedonia, Seychelles, Sri Lanka and Tajikistan and protocols with Canada, Kazakhstan, Korea, Russia, Switzerland, Belgium, Malta, Poland and Romania; and o the Luxembourg Parliament has adopted, on 26 May 2014, the bill 4 approving the OECD Multilateral Convention on Mutual Administrative Assistance in Tax 1 Circular Letter ECHA n 1 2 Bill n 6680 dated 10 April Bill n 6625 dated 3 October 2013, as amended by the Luxembourg government on 22 April 2014 further to additional recommendations from the Global Forum on Transparency and Exchange of Information 4 Bill n 6643 dated 6 January

3 Matters and its protocol (signed by Luxembourg on 29 May 2013). This convention has been signed by 55 countries and includes exchange of information provisions fully in line with international standards AUTOMATIC EXCHANGE OF INFORMATION On 18 March 2014, a bill 5 aiming at ending the transitional period and introducing automatic exchange of information under the EU Savings Directive 6 has been submitted to the Luxembourg Parliament. Luxembourg s former Prime Minister Mr. Jean Claude Juncker had already announced on 10 April 2013 Luxembourg s intention to apply automatic exchange of information under the EU Savings Directive as from 1 January This announcement has since then been confirmed by the new government of Mr. Xavier Bettel and the bill introduced on 18 March 2014 aims at implementing such automatic exchange of information in Luxembourg law. Luxembourg (like Austria) has also withdrawn its reservations on and given, after 6 years of negotiations, its green light to the extension of the scope of the EU Savings Directive based on the EU Commission s proposal of 13 November As a result, the EU Council has adopted, on 24 March 2014, the Council Directive 2014/48/EU 8 amending the EU Savings Directive. Luxembourg (like Austria) had until March 2014 always subjected its approval of the proposal to the condition that the other financial centers in Europe (namely Switzerland, Liechtenstein, Monaco, Andorra and San Marino) adopt equivalent measures in order to maintain a level playing field with them. In his State of the Nation Speech, Luxembourg s Prime Minister Mr. Xavier Bettel has indicated that the explicit reference in the EU Council s conclusions of March 2014 to the EU Commission s objective to pursue negotiations with the other financial centers in Europe and report on the outcome of such process before the end of 2014 has been made at his initiative. Some of the main changes introduced by the Council Directive 2014/48/EU are (i) enhanced rules (including look through approach based on customer due diligence and greater clarity on the concept of paying agent upon receipt (the so-called residual entities )) aiming at preventing individuals from circumventing the EU Savings Directive by using an interposed legal person (e.g. foundation) or arrangements (e.g. trust) situated in or outside the European Union, (ii) the extension of the products scope of the EU Savings Directive to include financial products that have similar characteristics to debt claims but are not legally classified as such (such as inter alia certain life insurance contracts) and (iii) the inclusion in the list of income taken into account for the purpose of the application of the Directive 2014/48/EU of all relevant income from both EU and non-eu investment funds regardless of their legal form and technical qualification. The 5 Bill n 6668 dated 18 March Council Directive 2003/48/EC on taxation of savings income in the form of interest payments 7 COM(2008) 727 final 8 Council Directive 2014/48/EU of 24 March 2014 amending Directive 2003/48/EC on taxation of savings income in the form of interest payments 3

4 national rules transposing the Council Directive 2014/48/EU have to be adopted by the EU Member States by January On 28 March 2014, Luxembourg and the USA signed an intergovernmental agreement to implement the US Foreign Account Tax Compliance Act (FATCA). This agreement is a model 1 agreement, which means that the Luxembourg financial institutions will not report directly to the US tax authorities but to the Luxembourg tax authorities who will pass on the collected information to the IRS. Further to the law of 29 March 2013 implementing the provisions on spontaneous exchange of information and exchange of information on request of the EU Directive 2011/16/UE on administrative cooperation in the field of taxation 9, the law of 26 March 2014 completes the transposition process of this Directive by introducing its provisions on the automatic exchange of information in the law of 29 March Based on the new law, the Luxembourg tax authorities will automatically exchange certain information that they have at their disposal on tax residents of other EU Member States with the competent tax authorities of the latter. The categories of Luxembourg source income subject to such exchange of information are salaries, director s fees (tantièmes) and pensions or annuities NEW INVESTMENT AND PATRIMONIAL VEHICLES Beside the implementation of the AIFM Directive 10 and the introduction of an attractive taxation regime for carried interest, the law of 12 July 2013 introduces a new investment vehicle, the special limited partnership (or société en commandite spéciale) and ensures full tax neutrality of the Luxembourg partnership regime to make it more appealing to investors who are used to the Anglo-Saxon partnership model. A bill 11 submitted to the Luxembourg Parliament on 9 July 2013 will, if adopted, introduce a new wealth management vehicle designed to manage private assets, the private foundation. This bill would also introduce a step-up principle for individuals who become Luxembourg residents according to which the acquisition value of the assets of a non-resident individual migrating to Luxembourg would correspond to the fair market value of the assets at the time of the migration. This bill has not been adopted by the Luxembourg Parliament yet. 9 Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC 10 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/ Bill n 6595 dated 22 July

5 1.4. OTHER DEVELOPMENTS Law of 26 May 2014 on exit taxes On 26 May 2014, the Luxembourg Parliament adopted a law bringing Luxembourg exit taxes rules in line with EU case law 12 and stopping the infringement procedure initiated by the EU Commission against Luxembourg on 27 September One of the main provisions of the law is the introduction of an option for a deferral of payment of the capital gain tax until the taxpayer effectively ceases to be the owner of the relevant assets in case of: transfer outside Luxembourg by a non-resident taxpayer of a business or permanent establishment; or transfer by a resident collective entity of its registered office and place of central administration abroad without keeping a permanent establishment in Luxembourg. The tax payment deferral will be available upon request, contrary to the existing deferral which is subject to conditions and late payment interest. Each year the taxpayer will however have to provide to the Luxembourg tax authorities evidence that she/he/it is still the owner of the relevant assets Luxembourg s new government s fiscal policy In the absence of specific tax measures in the 2014 budget law, the main projects and guiding ideas of the new government in the fiscal area are to be sought in its program unveiled in December and the State of the Nation Speech pronounced by Luxembourg s new Prime Minister Mr. Xavier Bettel on 2 April and are the following: The increase of the VAT rates in order to counter-balance the lack of revenues due to the change of the VAT rules applicable to electronic commerce. The Luxembourg standard rate will however remain the lowest in the European Union at 17%. The introduction of corporate governance and substance rules ascertaining a material and operational presence in Luxembourg. 12 National Grid Indus BV vs Inspecteur van de Belastingdienst Rijnmond / kantoor Rotterdam (C-371/10, 29 November 2011), 11 March 2004 De Lasteyrie Du Saillant case laws (C-9/02, 11 March 2004) European Commission vs Portuguese Republic (C- 38/10, 6 September 2012) and European Commission vs Netherlands (c-301/11, 31 January 2013) 13 Formal notice of the EU Commission 258(ex226)

6 In order to attract the headquarters of international groups to Luxembourg: (a) the modernization of (i) Luxembourg legislation on transfer pricing in line with international standards, (ii) Luxembourg special regime on intellectual property and (iii) Luxembourg participation exemption regime and (b) the formalization of the use of functional currencies for tax purposes. In the field of direct taxation, the establishment of a uniform procedure for advanced tax agreements aiming to achieve transparency, consistency and legal certainty for the operators. The support of new investments enabling development and sustainable economic growth inter alia via a tax immunization/exemption of a special reserve for investments in medium-sized enterprises. Introduction of a new tax (and legal) regime for coordination and group cash pooling centers. Confirmation of Luxembourg s opposition to the European financial transaction tax if such financial transaction tax is not implemented at a worldwide level 16. In his State of the Nation Speech, Luxembourg s Prime Minister Mr. Xavier Bettel announced his government s intention to prepare a comprehensive tax reform in 2016 with an entry into force planned for EU Commission s information injunctions on rulings and IP tax regime Following the launch in September 2013 of its state aid investigations on Luxembourg s ruling practice and IP tax regime and the absence, according to the EU Commission of adequate answers, the latter has adopted, on 24 March 2014, two information injunctions ordering Luxembourg to deliver the requested information within one month. According to the EU Commission, Luxembourg refused to respond fully to the requests addressed in September 2013 invoking fiscal secrecy: On its tax ruling system, Luxembourg only provided general information but failed to provide a specific overview of rulings for the years 2011 and Luxembourg also refused to deliver certain information on the use of the IP tax regime, including the details of the 100 largest companies falling under the regime. Following the two injunctions of the EU Commission to the Luxembourg tax authorities to provide the missing information, the latter expressed doubts over the legality of certain aspects of the injunctions and consequently limited the communication to those aspects it considered in line with European law. They have lodged two actions for annulment of these injunctions before the European Court of Justice. In response to these actions, the European Commission opened on 11 June 2014 a formal investigation procedure and issued two formal notices concerning alleged State aid against Luxembourg. 16 Opposition reiterated during the ECOFIN meeting of 6 May