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Contributing Editor: William WatsonPublished by Global Legal Group

Corporate Tax

Fourth Edition

CONTENTS

Preface William Watson, Slaughter and May

Albania Xheni Kakariqi & Erlind Kodhelaj, Deloitte Albania sh.p.k. 1

Bolivia Mauricio Dalman, Guevara & Gutiérrez S.C. 12

Brazil Ana Cláudia Akie Utumi, TozziniFreire Advogados 18

China Claudio d’Agostino & Daisy Guo, DLA Piper Shanghai Representative Office 32

Congo – D.R. Stéphanie Mutanda Mayala, MBM Conseil 41

Finland Kai Holkeri & Eeva-Lotta Kivelä, Dittmar & Indrenius 45

Germany Ernst-Thomas Kraft, Martin T. Mohr & Steffen C. Hörner, Hengeler Mueller Partnerschaft von Rechtsanwälten mbB 53

Ghana Eric Mensah, Sam Okudzeto & Associates 65

India Arijit Chakravarty, Kamal Sawhney & Satyajit Gupta, Advaita Legal 68

Ireland John Gulliver & Niamh Keogh, Mason Hayes & Curran 77

Italy Luca Rossi & Giovanni Barbagelata, Studio Tributario Associato Facchini Rossi & Soci 85

Kazakhstan Assel Ilyassova, GRATA Law Firm 95

Kenya Nicholas Wambua, Nicholas Ngumbi Advocates 100

Kosovo Afrore Rudi & Ruzhdi Zenelaj, Deloitte Kosova sh.p.k. 108

Luxembourg Gaëlle Felly & Anne Selbert, Bonn & Schmitt 115

Malta Kenneth Camilleri & Michelle de Maria, Chetcuti Cauchi Advocates 125

Norway Hans Olav Hemnes & Bernhard Getz, Advokatfirma Ræder DA 131

Peru Rocío Liu, Miranda & Amado Abogados – Taxand Peru 137

Russia Dmitry Anishchenko, Sameta 146

Serbia Jelena Knežević, LeitnerLeitner 154

Switzerland Susanne Schreiber & Corinna Seiler, Bär & Karrer AG 164

Ukraine Natalya Ulyanova & Oleg Derlyuk, ICF Legal Service 175

United Kingdom Zoe Andrews & William Watson, Slaughter and May 181

USA Geoffrey M. Davis & Christian E. Kimball, Jenner & Block LLP 196

Venezuela Alberto I. Benshimol B. & Humberto Romero-Muci, D’Empaire Reyna Abogados 208

GLI – Corporate Tax Fourth Edition 115 www.globallegalinsights.com

© Published and reproduced with kind permission by Global Legal Group Ltd, London

LuxembourgGaëlle Felly & Anne Selbert

Bonn & Schmitt

Overview of corporate tax work over last year

Types of corporate tax work• The typical debt/securities issuances, corporate restructurings, joint ventures and IPOs

still constitute the core corporate tax work in Luxembourg, along with a steady flow of transfer pricing work as well. The focus remains the elimination or reduction of multiple or double taxation of intercompany financial flows, all the while considering the economic consistency of structures vis-à-vis transfer prices and local functional substance in the countries involved to detect vulnerabilities to potential challenges by local or foreign tax authorities.

FATCA-related queries continue to arise on a regular basis, with respect especially to compliance and status, especially since the ratification of the Luxembourg IGA (Model 1) by a law dated 1 July 2015.Queries regarding exchange of information procedures are mainly related to the automatic exchange of information between EU Member States, whereas those related to exchange of information on request have subsided because of the limitations set by the Circular ECHA no 1 issued on 31 December 2013 by the Luxembourg direct tax authorities on the exchange of information procedure.Similarly to previous years, a growth in ultra-high-net-worth individuals (>€100m) private client work is occurring, with the consolidation of Luxembourg-based family office structures that replace former offshore or even onshore (e.g. France) vehicles.New investments and restructurings in real estate (through AIF or regulated structure) have continued to grow ever since the introduction in certain double tax treaties concluded by Luxembourg of the “real estate rich” concept (e.g. applicable as of 1 January 2017 for the double tax treaty concluded with France).Finally, tax disputes (including international tax arbitrations, mutual agreement procedures under double tax treaties) have continued a steady increase both in volume and importance of the taxes challenged.Significant deals and themes• Ongoing advice to a Lebanese private equity and capital development company in the

implementation of a joint venture structure investing up to €20m in a French company specialised in international oil & gas engineering projects, including recommendations on financing structuring in light of transfer pricing rules.

• Tax advice to one of the biggest Chinese state-owned investment companies, one of our existing clients, in the incorporation of a Luxembourg joint venture structure together with another state-owned Chinese company (being one of the world’s largest energy



Bonn & Schmitt Luxembourg

companies) for the purpose of holding equity stakes in the leading green energy arm of Portuguese power utility, through equity investments of over €260m.

• Due diligence services in relation to the acquisition of a 50% stake in a Luxembourg company holding 100% of an Italian real estate group, which in turn is the owner of one of the biggest shopping centres in Italy, and related tax advice as to the structuring of this acquisition.

• Advice on Luxembourg registration duty implications on the renewal of a mortgage and pledge regarding a global estate of approx. $2.2bn.

• Corporate tax and tax accounting advice on the €290m debt restructuring of the Belgian phone directory group Truvo.

• Involvement as expert witness, in the context of an ICSID arbitration case, to opine on (i) the tax substance of a company registered and governed by the Luxembourg laws, as well as (ii) the validity of an advance tax agreement obtained in the past and addressing the tax treatment of the back-to-back financing amount in dispute of ca. $14m.

• Advice to one of our insurance clients on: (i) the structuring of a life insurance and capitalisation bonds product with a Luxembourg legal entity as a policyholder; and (ii) asset management, intermediary and life insurance agreements (notably from a VAT, insurance tax and FATCA point of view).

• Global assistance and tax advice with regard to the acquisition by the French group “Froncière des Régions” of 22 German B&B hotels for a transaction value of approx. €130m.

• Advice on the second tranche of divestment in an IPO of a Spanish group admitted to listing on the Madrid, Barcelona, Bilbao and Valencia stock exchanges for a transaction value of approx. €30m.

• Advice on the transfer to Luxembourg of the registered office of a French top holding company with real estate investments valued at approx. €100m.

• Continued advice to a Swedish private equity firm in structuring investments to lower middle market unlisted companies in the Nordic region for an investment target of ca. €350m through a Luxembourg master feeder fund.

• Cross-border VAT & direct tax advice on a complex securitisation vehicle based in Luxembourg for a German promoter bank (HSH Nordbank) with UK-located investment assets.

• Successfully representing a large Scandinavian bank in two concurring cross-border criminal and tax recovery procedures targeted at one and the same client account, which included close coordination with different unrelated Luxembourg public authorities to ensure the efficient settlement of both procedures without exposing the liability of the bank.

• Appointment as tax counsel in light of a tax residency challenge of a local bank by foreign tax authorities, including liaising with local counsels and the Luxembourg tax authorities, as well as close coordination with the Luxembourg tax authorities regarding the initiation of a mutual agreement procedure to solve the issue.

Key developments affecting corporate tax law and practice

Domestic – cases and legislationNew tax measures in 2016The customary series of year-end tax measures have been adopted in three laws dated 18 December 2015 modifying, notably: (i) the Luxembourg income tax law (“LITL”) and the




Luxembourg net wealth tax law (“Tax Laws”), and (ii) addressing the State budget of 2016 (“Budget Law”).• The Tax Laws introduced, as from the 2015 tax year, a horizontal tax consolidation

between qualifying companies held by a common parent company (or a permanent establishment thereof) that is established in a European Economic Area country and is fully subject to a corporate tax comparable to corporate income tax. The Tax Laws also expand the vertical tax consolidation by allowing permanent establishments of non-Luxembourg resident companies and fully subject to a corporate tax comparable to corporate income tax to qualify as consolidated companies.

In addition, the Tax Laws transposed the “Parent-Subsidiary” Directive 2011/96/EU (“Directive”).

Asfromthe2015taxyear,thestep-upprincipleisextendedtosignificantparticipationsheld privately by an individual becoming a Luxembourg resident, except where such individual has previously been a Luxembourg resident for more than 15 years and non-Luxembourgresidentforlessthanfiveyears.Also,thedeadlinefortheapplicationofthe tax credit for hiring unemployed individuals has been extended to 31 December 2016 and the Luxembourg investment tax credit regime in the maritime sector is extendedtocovertheleasingofshipsusedininternationaltraffic.Furthermore,theexit tax payment deferral is extended as from the 2016 tax year to the transfer of a Luxembourg company, permanent establishment or business assets to countries with which Luxembourg has concluded a double tax treaty or a tax information exchange agreement that includes an exchange of information clause substantially in line with the OECDModelTaxConvention.Finally,theTaxLawsreplacedtheminimumincometax (applicable as from 1 January 2011, and further amended) by a minimum NWT either at a fixed rate of €3,210 for holding and financing companies (under certainconditions)oraprogressiveratescalingfrom€535upto€32,100(asdescribedbelow).

• The Budget Law repealed the IP Box regime (subject to grand-fathering provisions) and replaced the rather lenient paragraph 410 of the Luxembourg general tax law of 22 May 1931,asmodified(“Abgabenordnung”), which foresaw the possibility of a voluntary tax declaration at any point in time, with a time-limited tax amnesty programme to any taxpayer who (i) has held assets and received undeclared income, (ii) regularises them between1January2016and31December2017witharectifiedtaxreturn(includingthe necessary supporting documents), and (iii) pays the full amount of eluded taxes withinonemonthofthenotificationoftherectifiedtaxassessment,and(iv)hasnotyetbeen subject to an administrative or judicial procedure in respect to the eluded taxes. Theeludedtaxeswillbesubject toasurchargeof10%or20%foranyrectifiedtaxreturnfiledrespectivelybetween1January2016and31December2016orbetween1January 2017 and 31 December 2017.

Amendment to the Luxembourg-France double tax treatyOn 5 September 2014, the French and LuxembourgMinisters of Finance signed the 4th amendment to thedouble tax treatybetweenFranceandLuxembourgdated1April1958(“DTT”), which should become applicable as of 1 January 2017. This 4th amendment adds a new paragraph 4 in article 3 of the DTT to cover the capital gains realised on the sale of shares in a real estate rich company, i.e. an entity whose assets consist for more than 50% of real estate property or deriving at least 50% of their value directly or indirectly from real estate. With this new paragraph, capital gains on a real estate-rich company should only be taxable in the country where the real estate is located, except for real estate used by such entity for its own business activity. The new amendment will enter into force as of 1 January 2017.




FATCAOn 28 March 2014, the Luxembourg Minister of Finance signed with the Ambassador of the USA a Model 1 Intergovernmental Agreement to “Improve International Tax Compliance and with respect to the USA Information and Reporting Provisions Commonly Known as the Foreign Account Tax Compliance Act” (“Luxembourg IGA”). The Luxembourg IGA has already been amended through an exchange of notes dated 31 March 2015 and 1 April 2015.Model 1 is an exchange of information established directly between the tax authorities of both countries contrary to Model 2 where the Luxembourg financial institutions would have been obliged to communicate directly with the internal revenue service (“IRS”).Under the Luxembourg IGA, the USA and the Grand Duchy of Luxembourg have agreed to implement FATCA through (i) domestic reporting duties for financial institutions, and (ii) an automatic exchange of account information between the public authorities of the two countries and on the basis of existing bilateral tax treaties.A financial institution located in Luxembourg will have to comply with the requirements under the Luxembourg IGA in order to become a participating foreign financial institution, referred to as a “participating FFI”. The U.S Department of the Treasury would thus treat each Luxembourg financial institution as complying with FATCA and not subject to the 30% withholding tax on payments it receives during the time the Grand Duchy of Luxembourg is pursuing the necessary domestic law procedures for the entry into force of the Luxembourg IGA.The Luxembourg IGA was ratified by the law of 1 July 2015. Its application has been further detailed by the circulars on exchange of information issued on 31 December 2013 (ECHA N°1), 31 July 2015 (ECHA N°2 and ECHA N°3) and 18 February 2016 (ECHA N°3 bis).CRSDirectly inspired from FATCA, CRS designates the Common Reporting Standard developed by the OECD to facilitate cross-border automatic EOI of financial accounts. To address the new and forthcoming CRS obligations, it will be possible to capitalise on efforts that have been made in respect of FATCA (which is – to a certain degree – already logistically and operationally implemented) even though significant differences will need to be taken into consideration (e.g. the different definitions of de minimis rules, the differences in fund deemed compliant statuses, the different product and exemption definitions, the fact that CRS reporting will be based on tax residence principles, etc.).A Reportable Jurisdiction is (i) a Member State, or (ii) a State with which Luxembourg has signed an exchange of information agreement and listed in the CRS grand-ducal decree (which has not yet been published).CRS reporting should also take place separately under the OECD multilateral convention. Indeed, at OECD level (that is EU and non-EU countries), 51 jurisdictions have agreed to an automatic EOI on the basis of the CRS and most of them, including Luxembourg, have even committed to performing a first exchange of information on this basis in 2017. The legal basis for this exchange already exists in the OECD multilateral convention on administrative assistance in tax matters. CRS reporting within the EU should be done by 30 June 2017 regarding data from 2016. Luxembourg has implemented the CRS regulations by a law dated 18 December 2015. European – CJEU cases and EU law developmentsOne of the major ECJ court cases that may lead to positive outcomes for (Luxembourg and other EU Member) holding companies is definitely the joined cases C-108/14 and




C-109/14. To recall the fact patterns, in both cases the German tax authorities denied the right to deduct the full input VAT due to the fact that only the input VAT deemed in relation to the VAT activities of the mixed-activity holding companies was deductible.While a pure holding company (i.e. not involved in the management of any of its subsidiaries), is to be considered as a non-VAT person, with hence no input VAT deduction, the ECJ ruled that a mixed-activity holding company (i.e. involved in the management of its subsidiaries) should be considered as carrying out an economic activity and be treated as a VAT person and thus have the right to deduct input VAT in relation to the acquisition of shares in the subsidiaries. As a result, mixed-activity holding companies should be entitled to a full deduction of input VAT as the VAT costs should be included in their general costs.The second ECJ case law, a long-awaited decision, is the case C-595/13, whereby a Dutch company (“Company”) managed several companies incorporated by pension funds investing their capital in real estate. The Company did not account for any VAT on the services provided, as it considered that the services were exempt under the VAT exemption “management of special investment funds”. The Dutch tax authorities did not agree with such qualification and issued a VAT assessment to collect the VAT due.The ECJ recalled that to benefit from the VAT exemption on “management of special investment funds” or “SIF”, such “SIF” should (i) be subject to State supervision, and (ii) have features identical to collective investment scheme within the meanings of the UCITS Directive and carry out the same transactions in order for them to potentially be in competition with the UCITS. With respect to the specific case of real estate investment, the ECJ ruled that the management of “SIF” VAT exemption in relation to real estate property (i) does not cover per se the management of the real estate of the “SIF”, these type of services being not specific to the management of a “SIF”, but (ii) does cover management services specifically relating to the “SIF”, such as the selection, purchase and sale of the assets as well as administrative activities.BEPSThe OECD’s BEPS project and current EU legislation provide for spontaneous exchange of information on tax rulings, but only in certain circumstances. In order to tackle corporate tax avoidance, the European Commission presented on 18 March 2015 a package of tax transparency measures, of which a key element is a proposal to introduce an automatic exchange of information between Member States on their tax rulings.This proposal has been implemented through Council Directive 2015/2376 of 8 December 2015, which requires EU Member States to automatically exchange information on “advance cross-border rulings” (“Ruling”) and “advance pricing arrangements (“APA”) to all other Member States and the EU Commission.Cross-border ruling concerning exclusively individuals are out of scope.Directive 2015/2376 should be transposed before 31 December 2016 but will be applicable to Rulings issued (i) between 1 January 2012 and 31 December 2013 provided that they are still valid on 1 January 2014, and (ii) between 1 January 2014 and 31 December 2016, irrespective of whether they are valid or not on 1 January 2014. In this respect, it should be noted that Rulings and APAs issued by Luxembourg tax authorities are in principle applicable for a period of five years.Rulings concerning companies with an annual turnover of less than €40m at a group level, if such Ruling and APA were issued, amended or renewed before 1 April 2016, are excluded.




Directive 2015/2376 sets a strict timeline, according to which, every three months, national tax authorities will have to send to all other Member States a pre-defined set of reasonably detailed information following a standard format on all cross-border tax rulings. Member States would then be able to ask for more detailed information on a particular ruling, where relevant.In addition, Member States would have to provide statistics annually to the Commission on the volume of information exchanged on tax rulings.Other tax transparency initiatives outlined by the EU Commission include: (i) assessing possible new transparency requirements for multinationals; (ii) reviewing the Code of Conduct on Business Taxation; (iii) quantifying the scale of tax evasion and avoidance; and (iv) repealing the Savings Tax Directive (repealed by Directive 2015/2060).

Tax climate in Luxembourg

At a domestic level, the practice of requesting advance rulings from the tax administration, such as advance tax agreements or advance pricing agreements, has been codified into law and modernised by the law of 19 December 2014 and the new procedure is ruled by a grand-ducal decree, both applicable as from 1 January 2015. While in previous years almost all advance rulings were filed with tax office no 6 for companies, of which the inner workings, procedures and practice were well known by initiated persons, the entry into force of the aforementioned new procedure implied the implementation of an “advance ruling commission”, to which any advance ruling request related to corporate taxes should be submitted. Although the role of this commission is to assist the tax offices in the equal and uniform execution and application of the Luxembourg tax laws, it is worthwhile to note that the procedure of this commission seems still slightly cumbersome and slow and its practice not yet fully refined. It should be noted that such advance tax agreement procedure has been extended to individual taxpayers. Furthermore, any advance tax agreement obtained is to be published annually on a no-name basis by the Luxembourg tax authorities, and subject to the automatic exchange of information. At an international level, ever since its commitment on 13 March 2009 to fully support the international exchange of information standard in tax matters, followed by Luxembourg’s subscription to the declaration of 28 November 2013 strongly supporting the OECD’s development of a single global standard for automatic exchange of information (EOI) between tax authorities, Luxembourg has kept taking an accrued number of steps to strengthen its co-operation with its foreign partners. In 2014 and 2015, in particular, the legislative and regulatory activity concerning exchange of information peaked to ensure Luxembourg’s full compliance with the international exchange of information standard for which shortfalls had been detected by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (“Global Forum”) in its phase 2 peer review report on Luxembourg published in November 2013. Luxembourg was thus qualified for a supplementary phase 2 review in 2015, following which the Global Forum lauded the progress made by Luxembourg, and improved most of Luxembourg’s ratings to “Largely Compliant”.Luxembourg’s full commitment to participate in the global fight against tax fraud and tax evasion is also substantiated by the impressive array of grand-ducal decrees and circulars that are continuously implemented in order to smoothen and facilitate transitioning towards all of the new EOI regulation.Today, Luxembourg applies the most up-to-date EOI standard in pristine conditions and is thus absolutely compliant, so much so that Luxembourg’s willingness to foster international




cooperation is now officially and fully recognised by the Global Forum. Luxembourg is also at the forefront of the automatic EOI, of which a truly global standard is in the works within the framework of the CRS.

Developments affecting attractiveness of Luxembourg for holding companies

Legislative changes affecting holding companies in particularAs aforementioned, the Tax Laws include a regular update of the scope of Annex I of the “Parent-Subsidiary” Directive 2011/96/EU (“Directive”) and transpose into the Luxembourg income tax law (“LITL”) and municipal business tax law (“MBTL”) two major amendments to the Directive introduced by Directives 2014/86/EU and 2015/121/EU, i.e. respectively an anti-hybrid rule (“AHR”) and a de minimis general anti-avoidance rule (“GAAR”) designed specifically for the EU Parent-Subsidiary regime.The GAAR inserted into article 147 of the LITL precludes the benefit of the withholding tax exemption in respect of income paid to (a) a corporation resident in another EU Member State and covered by article 2 of the Directive, or (b) a permanent establishment located in another EU Member State of a corporation resident in another EU Member State when such income is paid as part of an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the Directive, is not genuine having regard to all relevant facts and circumstances.In addition, article 166 LITL and paragraph 9 MBTL have been amended such that the benefit of the dividend exemption in respect of income received from a corporation resident in another EU Member State and covered by article 2 of the Directive is denied when such income is: (a) deductible in the other EU Member State (i.e. AHR); or (b) paid as part of an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the Directive, is not genuine having regard to all relevant facts and circumstances (i.e. GAAR).For the purposes of the GAAR, an arrangement, which may comprise several steps or parts, or a series of arrangements, is considered as not genuine to the extent that it is not put into place for valid commercial reasons that reflect economic reality.It follows clearly from the wording of the LITL that the application of the AHR and GAAR is restricted to distributions within the scope of the Directive, hence distributions to non-EU entities are not affected. While the scope of the AHR is fairly clearly defined, the wording of the GAAR is the source of several uncertainties that must be lifted one after the other by a careful analysis in the context of existing anti-abuse doctrine in EU law. It is worthwhile to note that the GAAR in effect seems to be only marginally broader than the pre-existing Luxembourg anti-abuse rule.The AHR and GAAR apply to income distributed or received after 31 December 2015.Minimum flat taxPursuant to the aforementioned Tax Laws, the minimum corporate income tax regime (as laid down under Article 174, paragraph 6 of the LITL) has been replaced by an almost identical regime for net wealth tax purposes. As from 1 January 2016, all fully resident corporate taxpayers (including securitisation companies and undertakings for collective venture capital investments) holding financing assets representing at least 90% of their total assets and €350,000, are subject to a flat minimum net wealth tax of €3,210. All other




taxpayers are liable to a minimum net wealth tax that is progressive and linked to their total balance sheet, in a range of €535 to €32,100. In addition, the Tax Laws introduced a reduced net wealth tax rate of 0.05% that applies as from 1 January 2016 to net wealth in excess of €500m, so that the net wealth tax due will be equal to €2.5m increased by 0.05% of the portion of the net wealth tax base above €500m.

Industry sector focus

IP sectorThe Budget Law has repealed the Luxembourg IP Box Regime (as previously contained in article 50bis of the LITL and § 60bis of the Luxembourg Evaluation Law or “Bewertungsgesetz”) as from 1 July 2016 for corporate income tax purposes, and as from 1 January 2017 for net wealth tax purposes. A five-year grandfathering period starting as from 1 July 2016 and ending on 30 June 2021 has nevertheless been granted and should apply to (i) existing Luxembourg IP Box Regimes, and (ii) IP rights acquired, constituted, or modified/improved before 1 July 2016 (under certain conditions).The benefit of the transitional period has been restricted by anti-abuse rules and is subject to a strengthened transparency vis-à-vis foreign tax authorities. In this respect, the measures are twofold: a) a reduction of the grand-fathering period to 31 December 2016 (1 January 2018 for net wealth tax) for IP rights acquired from related parties after 31 December 2015 and before 1 July 2016, unless the concerned IP rights were already eligible for the existing IP Box Regime; and b) a spontaneous exchange of information concerning existing IP Box Regimes in connection with IP rights acquired or created after 6 February 2015.

The year ahead

IPA new Luxembourg IP Box Regime, compliant with the OECD guidance on BEPS and the Nexus approach, is expected to be launched during 2016.The exchange of information procedure on requestPursuant to the law of 25 November 2014 on the exchange of information procedure applicable in the case of the exchange of information upon request from a foreign tax authority, the Luxembourg tax authority may request the Luxembourg taxpayer to disclose certain information. The control exercised by Luxembourg tax authorities is nevertheless restricted to the analysis of the request from a pure formal perspective (mainly to avoid fishing expeditions) without any analysis on the relevance of the reasons why the tax request is performed. The taxpayer has no right to appeal such request before national courts.Such denial of the right of appeal has been recently challenged by a Luxembourg taxpayer and the Administrative Court of Appeal has introduced an interlocutory question before the European Court of the European Union regarding the compatibility of the procedure with the respect of the right of defence as set out in the law of 25 November 2014 with the European Charter of Fundamental Rights. The decision of the court is highly anticipated. 2017 tax reformOn 29 February 2016, the eagerly anticipated tax reform was presented by the Luxembourg government. No bill of law has been yet drafted or published. The below is correct at the time of writing.




For corporate taxpayers this 2017 tax reform proposed:(i) to decrease the Luxembourg corporate income tax rate from the current 21% to 19% in

2017 and 18% in 2018. The rate is further pushed down to 15% in 2017 for companies with an annual taxable income not exceeding €25,000 (thus, the aggregate corporate income tax and municipal business tax rate would be reduced from the current 29.22% to 27.08% in 2017 and 26.01% in 2018 for companies residing in Luxembourg-city);

(ii) an increase of the minimum NWT applicable to holding and financing companies would be increased by 50%, to bring it from €3,210 to €4,815; and

(iii) a limitation in time of the carry-forward tax losses for tax losses generated in tax periods beginning in 2017.

In addition, the 0.24% registration duty due upon the contribution of a debt claim to the capital of a Luxembourg company would be abolished.The capital gains on immovable property held by a family company would, under certain conditions, be tax-immunised.Other tax measures regarding individual taxpayers are foreseen which relate notably to the option for individual taxation for married couples and the abolition of the temporary 0.5% budgetary compensation tax. Also, tax brackets would be adjusted in order to reduce the overall average tax rate, and a new tax bracket is of 42% is added for income exceeding €200,000. Finally, the withholding tax on interest payments made by Luxembourg paying agents to Luxembourg-resident individuals would be doubled from 10% to 20%.General overviewBeyond technicalities, it is fairly clear that since the beginning of 2016, paper-only, mailbox-type entities have lost any meaningful usefulness to corporate taxpayers in their operations with EU member countries, to say the least.Financial sector professionals are hence invited to take the necessary steps to avoid exposure for themselves and, where possible, for their clients.In this second case, those meaningful entities and clients where a dedicated effort at ongoing compliance with new tax rules is warranted must be identified and warned. Should such an effort not yet have been initiated, a thorough assessment of vulnerability to legal risks and threats, so as to determine whether (and how) the operational reality of the business concerned can be adjusted and/or whether (and how) any interposed vulnerable entities or structures need to be eliminated, has to be considered. In view of (i) an increasing rapidly changing tax legislation at both domestic and international levels, (ii) the significant potential for inconsistent implementation of some of the measures discussed above by the Member States, (iii) the resulting increased risk of cross-border conundrums where a necessary step for the purposes of country A would trigger a significant issue in country B, and (iv) the time needed to accommodate operational reality in this exercise, it is advisable to perform the above assessment and agree on actions required within a fairly short timeframe.Separately, corporate taxpayers who have frequently resorted to advance tax agreements in the past may want to revisit such structures to identify which ones are effectively still valid and which others no longer are.



Gaëlle FellyTel: +352 27 855 / Email: [email protected]ëlle heads the tax practice of Bonn & Schmitt, which encompasses all of Luxembourg’s tax laws, including VAT and registration duties and exchange of information, in both advisory and litigation. Prior to joining the firm, she worked for many years in major law firms. Over the last 12 years she gained experience in the alternative investment fund industry/venture capital, advising leading private equity players, and has been involved in real estate project financing, asset protection, disposal of assets, cross-border restructuring and financial recovery operations, private wealth planning, and intellectual property structuring. She is the author of various articles on Luxembourg tax developments such as double taxation issues and collective investment vehicles.

Anne SelbertTel: +352 27 855 / Email: [email protected] is senior in the tax department of Bonn & Schmitt, which deals with all of Luxembourg’s business taxation in banking, private equity and industrial areas. She has eight years of experience in the taxation and structuring of cross-border investments via Luxembourg vehicles and supervises the junior associates of the team. She publishes articles on diverse tax topics, such as tax secrecy and tax transparency.

Bonn & Schmitt22-24, Rives de Clausen, L-2165, Luxembourg

Tel: +352 27 855 / Fax: +352 27 855 855 / URL: http://www.bonnschmitt.net


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