Traditionally, the beginning of each tax year brings a certain number of new tax developments which are important for corporate taxpayers to keep in mind. 2015 is no different and the developments below summarize the key tax focus areas we have identified. We also take this opportunity to express our best wishes for 2015 on behalf of KPMG Luxembourg.
In an increasingly changing and global tax landscape, business executives will need to keep a close eye on a number of important corporate tax developments that could affect their company operations in 2015, in particular for multinational groups engaged in cross-border transactions.
Looking ahead, there are new tax rules and trends that must be taken into account from a Luxembourg perspective, most of which have been largely influenced by the recent tax developments occurring at European and OECD level.
What should businesses be focusing on in 2015?
Be prepared to comply with new rules on exchange of information
Over the last few years, Luxembourg has been moving towards enhanced transparency in tax matters and has implemented a number of concrete measures in this respect. The most visible – and symbolic – change in the short term is certainly the generalization of the automatic exchange of information on interest income paid to EU individuals, within the frame of the European Savings Directive, applicable as from 1st January 2015 (subsequent to the abolishment of the 35% withholding tax previously levied on such income when the beneficiary had not explicitly requested the paying agent to apply the automatic exchange of information). The year 2015 will also be the year of the first automatic exchange of information related to U.S. reportable accounts under FATCA (exchange of information ultimately with the U.S. via the Luxembourg tax authorities).
That said, the focus in 2015 now shifts to ensure that companies will have the right systems in place to comply with the new OECD’s Common Reporting Standard (CRS) and its concrete translation into the EU law (the future revised Directive of administrative cooperation) that will apply in Luxembourg (as well as in many other countries) as from 2017 based on tax information of 2016.
Be aware of the changes deriving from the Luxembourg 2015 budget
Besides the increase of the VAT rate from 15 to 17% (still the lowest in the EU), the Luxembourg 2015 budget contains a few interesting corporate tax measures (see our newsletters 2014-22, 2014-29 and 2015-01), amongst which the new rules formalizing and modernizing the tax ruling process and transfer pricing legislation.
Businesses should build awareness of the new rules and procedures. Going forward, they will also have to monitor any possible changes that could occur in the future as a result of the comprehensive tax reform expected in 2017, which is intended to ensure a competitive tax framework compliant with the new international tax standards.
Keep an eye on the changing European tax landscape
Following the trends launched by the OECD, the EU Commission has intensified its efforts to promote the coordination of the corporate tax rules and expanded its actions to fight against tax evasion and tax fraud. This has already resulted in concrete measures being implemented such as the recent amendments to the Parent-Subsidiary Directive.
Other actions are expected, for example in the field of automatic exchange of information for tax rulings, regarding the proposal for a financial transaction tax or concerning the broadening of the tax base (CCCTB). Given the current political context, there remains a possibility that some of these measures could become reality as early as in 2015. Determining the domestic and international tax implications of these actions is therefore critical for all businesses.
Think about substance and beneficial ownership issues
More than ever, having sufficient operational substance will be one of the key focus area for most multinational groups engaging in cross-border transactions. However, determining the right level of substance may prove difficult going forward as there are several standards that may apply, for example, for transfer pricing purposes, treaty access and LOB rules or for benefiting from specific local tax incentive regimes (e.g., IP regimes). Businesses must closely watch out for new developments occurring in this respect and must start assessing whether their current level of substance is still appropriate and sustainable in case of challenges from local tax authorities.
Pay close attention to the OECD’s BEPS initiative
It goes without saying that multinationals need to start preparing for the inevitable changes that are happening at both an international and national level as a result of the OECD Base Erosion and Profit Shifting (BEPS) initiative. The last BEPS outputs are indeed expected to be delivered by the end of 2015. Meanwhile, various countries have already started unilaterally implementing some of the BEPS recommendations with a focus on anti-hybrid measures and stricter anti-abuse rules.
As a result, companies will notably need to determine whether their current structures will be “BEPS compliant” and ensure that they will be able to comply with the upcoming new documentation requirements. Moreover, possible exposures to reputational risk make it critical that companies anticipate public perception of their tax positions and consider how they could proactively address any potential concerns.
Ensure compliance with new transfer pricing rules and documentation requirements
Transfer pricing is one of the key items of the BEPS action plan. As a result, one of the immediate concerns for taxpayers will be to determine how to comply with the new reporting / documentation requirements that will result from these new rules once finalized. In practice, most multinationals already have some transfer pricing documentation in place but they should be prepared to adjust and expand it to keep pace with the rapidly changing tax environment. Businesses should also be able to proactively explain the data to be disclosed, as part of a more global communication tax strategy. Besides, in line with this global trend, Luxembourg has recently been clarifying its transfer pricing legislation and has expressly extended the general information and documentation obligations of taxpayers to transactions between related parties.
It is therefore clear that particular attention is given to transfer pricing (in general and to transfer pricing documentation in particular) both at a national and international level.
As you can see from the above, taxation is high on the agenda of all countries and international organizations. Consequently, given the evolving tax landscape in 2015, business leaders will more than ever need to stay informed in a timely manner and review their current structures and substance in order to achieve a sustainable tax strategy.
For further information, please do not hesitate to contact us.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.