Luxembourg has engaged a number of inititiatives to secure it’s tax-friendly business environment on a mid-term and long-term perspective.
The Luxembourg tax ruling practice has been codified since January 1st 2015 offering a legal framework for tax rulings:
- Applying to both corporations & individuals;
- New legal provisions regarding transfer pricing : introduction of the arm’s length principle in tax law = normal market conditions to be applied ; taxpayers are obliged to provide all necessary documentation supporting the data included in their tax return;
- Tax rulings to be approved by a new authority within the tax administration: “Commission of anticipated (tax) decisions”;
- Fee to be paid for tax clearings (EUR 3’000-10’000)
- Tax rulings applications should be limited from now on to non-standardised tax planning;
- Rulings have a limited validity period of 5 years.
Beside that, substance become smore and more key: the substance criteria listed in the annex to the Financing Circular from October 26, 2012 (part of the regulatory framework of the Luxembourg advance pricing agreement practice) are appliable without any restriction:
- Do you have actual management in Luxembourg?
- Is your business address of the company in Luxembourg?
- Are your key decisions held in Luxembourg?
- Do you have professional knowledge to perform your functions?
- Do you have qualified employees?
- Are you filing accounting documents and tax returns in Luxembourg?
- Is your principal bank account kept in Luxembourg?
- Do you have sufficient equity that corresponds to the functions performed?
- Are the company’s operating expenses recorded in the local profit and loss statement (P&L)?
- Are local compliance formalities duly satisfied?
- Are meetings physically held locally? …
It's important to fulfil substance requirements for implementing a company structure so that it can successfully pass any tax audit in the UBO’s / parent company’s home country.
Meanwhile, the EU Commission enquiry into tax ruling practise of EU Member states targets:
- Some aggressive tax planning strategies will most probably be banned for illegal state aids(goodwill, foreign branches …);
- Transfer pricing rules and other common tax planning instruments will most probably not be challenged.