tax update January 2014

Transcription

1 tax update January 2014

2 Summary Luxembourg news 3 Introduction of the bill regarding the automatic exchange of information 3 New circular letter of 31 December 2013 on the exchange of information upon request procedure 3 New circular letter on reduction of net worth tax 4 New VAT circular letter on fund management VAT exemption - risk management services included 5 Case No a dated 1 October 2013 incompatibility of 5-year requirement for Luxembourg net wealth tax exemption with freedom of establishment 5 International news 6 Sales made by retailers subject to VAT where a customer fraudulently uses a credit card (case C-494/12) 6 Inclusion of VAT in the sales price in the absence of VAT provisions in the sales contract (joined cases C-249/12 and C-250/12) 6 Exemption of the management of special investment funds (case C-464/12) 6 Useful information 7 Tax treaty network 7 OECD public consultation on transfer pricing matters 7 Miscellaneous 8 Copyright 2013 Arendt & Medernach 2

3 Luxembourg news Introduction of the bill regarding the automatic exchange of information On 17 December 2013, the Luxembourg Ministry of Finance filed bill No (the Bill ) with the Luxembourg Parliament (Chambre des députés) which is aimed at transposing into Luxembourg domestic law article 8 of Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation (the Directive ). The Directive which provides, on the basis of the OECD standards, for an exchange of information (either automatically, spontaneously or upon request) between tax authorities of the Member States of the European Union entered into force on 1 January 2013 and was partly transposed into Luxembourg legislation by the law dated 29 March 2013 (applicable with retroactive effect as of 1 January 2013), except as regards article 8 which foresees an automatic mandatory exchange of information between Member States (please refer to our tax update of April 2013 available on our website at dates/tax-update-april-2013.aspx). Consequently, and in accordance with the Directive, the Luxembourg tax authorities will as from 1 January 2015 automatically exchange information on the following 3 types of income regarding periods starting from 1 January 2014: Income from employment; Director s fees; and Pensions. It should be noted that the European Commission has in the meanwhile proposed an amendment to the Directive (2013/0188) which extends the automatic exchange of information to dividends, capital gains, other financial income and account balances. New circular letter of 31 December 2013 on the exchange of information upon request procedure On 31 December 2013, the Director of the Luxembourg tax authorities (Administration des contributions directes) issued a new circular letter ECHA No. 1 (the Circular Letter ) on the exchange of information upon request procedure. The purpose of the Circular Letter is to clarify certain aspects of the Luxembourg procedure applicable in the case of receipt, by the Luxembourg tax authorities, of an exchange of information request from foreign tax authorities. The Circular Letter provides for guidance on the following points: The notion of foreseeable relevance of the information requested / exchanged; The application of the principle of nonretroactivity of double tax treaties implementing the exchange of information upon request; The requirement of non-selectivity with regard to the information to be provided to the Luxembourg tax authorities by the taxpayer or the holder of information; and The addressee of the injunction. 3

4 New circular letter on reduction of net worth tax Luxembourg corporate taxpayers may avoid or reduce their net worth tax ( NWT ) liability for a given year by booking a specific reserve, equal to 5 times the NWT to save, before the end of the subsequent tax year and maintaining such reserve during the 5 following tax years. On 14 November 2013, the Luxembourg tax authorities (Administration des contributions directes) issued circular letter I. Fort No. 47 (the Circular Letter ) on the conditions and modalities of the NWT reduction. The key elements of the Circular Letter may be summarised as follows: The NWT reserve may be funded by annual profits or by freely distributable reserves; The NWT reduction is (i) limited to the amount of corporate income tax (including the solidarity surcharge but before imputation of tax credits) due for the same financial year and (ii) not granted for an amount equal to the minimum advance corporate income tax introduced in 2013 (please refer to our tax update dated October 2013 available at Liquidation of the company prior to the end of the 5-year period during which the NWT reserve must be maintained, may result in cancellation of the NWT reduction. There is however no condition requiring that the company remains continuously subject to NWT during the 5-year period and the company may thus migrate to another EU Member State before the end of the 5-year period without the reduction being cancelled (the latter point had already been clarified by the Luxembourg lower administrative court (tribunal administratif) in a recent case No a dated 1 October 2013); The capitalisation of the NWT reserve prior to the end of the 5-year period does not trigger the cancellation of the NWT reduction; In case of a fiscal consolidation (which is only available in Luxembourg for corporate income taxes to the exclusion of NWT), the NWT reduction is available to each individual group member. The global NWT reduction is limited to the amount of corporate income tax (including the solidarity surcharge but before the imputation of tax credits) due by the consolidated group. In addition, the NWT reduction is not granted for an amount equal to the advance corporate income tax (including solidarity surcharge but before tax credits) which would be due by the group members individually in the absence of a consolidation; and In case of a merger, the absorbed company is not penalised by the cancellation of the NWT reduction if the merger occurs prior to the expiration of the 5-year period provided the reserve is continued by another group company. The same treatment applies in case of a division. NWT is levied on Luxembourg resident and nonresident corporate taxpayers at the rate of 0.5% on their net assets as valuated each 1 January. The Circular Letter has the merit of clarifying the NWT reduction treatment in a number of situations that have regularly occurred in practice since the introduction of the NWT reduction in In line with the tax authorities efforts to increase transparency, the Circular Letter is very practice-oriented and illustrates the above principles with practical examples. 4

5 New VAT circular letter on fund management VAT exemption - risk management services included On 7 November 2013, the Luxembourg VAT authorities (Administration de l enregistrement et des domaines) issued circular letter No. 723ter (the Circular Letter ) on the VAT treatment applicable to risk management for investment funds. The Circular Letter confirms that risk management functions are considered part of VAT exempt fund management services. This confirmation is of particular relevance for Luxembourg based alternative investment funds ( AIFs ), which are eligible for the application of the fund management VAT exemption in Luxembourg and are bound under the AIFM Directive and the Law of 12 July 2013 on Alternative Investment Fund Managers to identify, measure, manage and monitor appropriately all risks relevant to AIF investment strategies. It should however be noted that the conditions for the application of the VAT exemption need to be addressed on a case by case basis when it comes to the (partial) delegation of risk management functions (the VAT exemption is not automatic in these instances of delegation). Case No a dated 1 October 2013 incompatibility of 5-year requirement for Luxembourg net wealth tax exemption with freedom of establishment On 1 October 2013, the Luxembourg administrative court (tribunal administratif) rendered a judgment on the compatibility of the net worth tax ( NWT ) reduction regime with the freedom of establishment under article 49 of the treaty on the functioning of the European Union ( TFEU ). Luxembourg corporate taxpayers may avoid or reduce their net worth tax ( NWT ) liability for a given year by booking a specific reserve, equal to 5 times the NWT to save, before the end of the subsequent tax year and maintaining such reserve during the 5 following tax years. In the case at hand the NWT reduction had been denied for a given financial year because the company migrated to another EU Member State prior to the expiration of said 5-year period, ceasing thereby to be a Luxembourg tax resident subject to NWT. Following a request by the Luxembourg lower administrative court, the Court of Justice of the European Union ( CJEU ) had already decided on 6 September 2012 that the condition regarding the continued liability to NWT during the 5-year period was not compatible with the freedom of establishment under article 49 TFEU (please refer to our tax update of October 2012 available at The Luxembourg lower administrative court followed the CJEU s decision. The Luxembourg tax authorities (Administration des contributions directes) have accordingly changed their administrative practice and issued circular letter I. Fort No. 47 (the Circular Letter ). The Circular Letter states that a liquidation of the company prior to the end of the 5-year period during which the NWT reserve must be maintained, may result in the cancellation of the NWT reduction. There is however no condition requiring that the company remains continuously subject to NWT during the 5-year period and the company may thus migrate to another EU Member State before the end of the 5-year period without the reduction being cancelled. 5

6 International news Sales made by retailers subject to VAT where a customer fraudulently uses a credit card (case C-494/12) The European Court of Justice ( CJEU ) decided on 21 November 2013 that the physical transfer of goods to a purchaser who fraudulently uses a credit card as a means of payment constitutes a supply of goods and that, in the context of such a transfer, the payment made by a third party, under an agreement concluded between it and the supplier of those goods by which the third party has undertaken to pay the supplier for the goods sold by the latter to purchasers using such a card as a means of payment, constitutes consideration. The supplies in question are therefore supplies of goods for VAT purposes because there is a transfer of possession to the fraudster who is free to dispose of the goods as if he were the owner. Inclusion of VAT in the sales price in the absence of VAT provisions in the sales contract (joined cases C-249/12 and C-250/12) In its decision of 7 November 2013, the European Court of Justice ( CJEU ) ruled that when the price of a good has been established by the parties without any reference to value added tax and the supplier of that good is the taxable person for the VAT owing on the taxed transaction, in the event that the supplier is not able to recover from the purchaser the VAT claimed by the tax authorities, the price agreed must be regarded as already including the VAT, meaning that the supplier is considered as liable for the payment of the VAT due. Exemption of the management of special investment funds (case C-464/12) On 12 December 2013, the Advocate general delivered his opinion as regards the scope of application of special investment funds within the context of the fund management VAT exemption provision. This concept includes occupational pension funds where such funds pool the assets of several beneficiaries and allow the spreading of the risk over a range of securities. This is only the case when the beneficiaries bear the risk of the investment. The fact that the contributions are made by their employers for their benefit under a collective agreement between organisations representing employees and employers and that the payments out of the fund are only made upon retirement is irrelevant, as long as the beneficiary has a secure legal position with respect to his or her assets. 6

7 Useful information Tax treaty network Over the last 3 months, the following developments concerning the Luxembourg double tax treaty network have occurred: On 4 September 2013, the amending protocol and exchange of letters to the Korea (Rep.) - Luxembourg tax treaty entered into force. The protocol is generally applicable from 4 September On 30 September 2013, the new treaty between Germany and Luxembourg entered into force. The treaty is generally applicable from 1 January From this date, the new treaty replaces the treaty concluded in 1958, as amended by the 1973 and 2009 protocols. On 9 October 2013, Luxembourg and Singapore signed a new tax treaty. Once in force and effective, this treaty will replace the treaty signed in On 10 December 2013, the amending protocol to the treaty between Canada and Luxembourg entered into force. The protocol is generally applicable from 1 January On 11 December 2013, the Kazakhstan- Luxembourg tax treaty signed in 2008, as well as the amending protocol signed in 2012 entered into force. The protocol and treaty generally applicable from 1 January On 27 December 2013, Ireland and Luxembourg initialled an amending protocol to their tax treaty. OECD public consultation on transfer pricing matters On 12 and 13 November the OECD held a public consultation on transfer pricing topics at the OECD Conference Centre in Paris. The topics discussed at the meeting included public comments on the 30 July Revised Discussion Draft on Transfer Pricing Aspects of Intangibles, public comments on the 30 July White Paper on Transfer Pricing Documentation, the BEPS Action Plan requirement to adopt a system of country-by-country reporting of selected company financial data to tax administrations, and the appropriate scope of other transfer pricing aspects of the BEPS Action Plan. Following the public consultation, OECD Working Party No. 6 will finalise its revised guidance on intangibles and will pursue the various transfer pricing aspects of the BEPS Action Plan. 7

8 Miscellaneous On 2 December 2013, the new government released its fiscal plans for the coming years. The Luxembourg government will work on strategies to ensure stability, legal certainty as well as competitiveness in the international arena in line with the OECD initiatives. The government announced that an increase of the country's revenue is necessary although it is to be achieved mostly through economic growth and only to a lesser extent through the increase of taxes. It will also simplify and modernise the general fiscal laws. In addition, the following measures have been announced: A self-assessment system for both direct and indirect taxes (this is already in place for corporate income tax); The introduction of a notional interest deduction; An increase of the VAT rates by 2%, with the result that the normal rate has been raised from 15% to 17% (which still remains the lowest VAT rate in the European Union); and An introduction of a standardised advance tax confirmation procedure in accordance with international standards. 8

9 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 Bruno Gasparotto, Principal Alain Goebel, Partner Thierry Lesage, Partner 9