Tax in Focus
International Tax Partners at KPMG Luxembourg Philippe Neefs and Pierre Kreemer
Taxation in Luxembourg
“The political program of the new Luxembourg Government released on 2 December 2013 – which is only indicative – confirms the political commitment of the new government to ensure a competitive Luxembourg tax framework while also supporting the European initiatives towards tax transparency and the OECD work on BEPS”
Philippe Neefs Q
Can you give us an overview of taxation in Luxembourg over the
last year?
Apart from the aggregate corporate tax rate increase from 28.80% to 29.22% and the minimum corporation flat tax increase from EUR 1,575 to EUR 3,210 per annum for holding and/or financing companies (Soparfi), the tax environment remained stable in 2013.
Pierre Kreemer
Philippe Neefs and Pierre Kreemer are International Tax Partners at KPMG Luxembourg, both with over 20 years experience in diversified cross border tax planning services. Philippe has set-up the transfer pricing team and Pierre is the real estate & infrastructure leader at KPMG Luxembourg.
The main novelty lies in the implementation of a Special Limited Partnership (‘SCSp’) regime. On 12 July 2013 Luxembourg transposed the AIFMD (‘Alternative Investment Fund Managers Directive’) into Luxembourg national laws. True to Luxembourg’s tradition of providing added value when transposing EU directives, the Grand Duchy’s lawmakers have taken the opportunity to enhance the national corporate legal framework by introducing this new form of limited partnership into Luxembourg law. In a nutshell, the SCSp has no legal personality, is tax transparent, with a high degree of contractual flexibility and confidentiality. A new attractive carried interest regime, and confirmation that management services rendered to AIFs (Alternative Investment Funds) are also VAT exempt, complete the new measures.
Q
What aspects of Luxembourg’s tax landscape help to make it an attractive jurisdiction for business?
Luxembourg offers an attractive tax
environment with for instance: • Stable political environment with a strong reputation for pro-business legislation and administration;
• Low statutory corporate tax rate and in many cases even lower effective tax rates;
• Lowest VAT rates in Europe; • Extensive exemptions from withholding tax on dividends;
• No withholding tax on non-profit linked interest and royalties;
• No controlled foreign companies (CFC) rules;
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• Generous thin capitalization rules; • Attractive tax regimes in the field of investment funds, securitization, intellectual property, investment in risk capital and reinsurance;
• Extensive bilateral tax treaty network with currently 68 treaties in force;
• Attractive taxation of employees and low social security contributions for employers and employees;
•
Accessibility and pro-active involvement of the government with respect to businesses which relocate personnel and operations to Luxembourg (e.g. to obtain visa or trading licenses).
Q
What do you foresee in terms of taxation in Luxembourg for 2014?
The political program of the new Luxembourg Government released on 2 December 2013 – which is only indicative – confirms the political commitment of the new government to ensure a competitive Luxembourg tax framework while also supporting the European initiatives towards tax transparency and the OECD work on BEPS (Base Erosion and Profit Shifting).
In this respect stronger operational substance requirements are foreseen.
Nevertheless, new incentives should also be implemented such as setting-up of an attractive tax framework for headquarters (including general transfer pricing legislation, enhancement to the intellectual property and participation exemption regimes, formalization
of the functional currency
regime for tax purposes...), the introduction of a notional interest regime, the introduction of a legal and tax regime for coordination center and group treasury activities and a tax immunized reserve regime for investment by medium-sized companies.
In 2014 neither the corporation income tax, nor the municipal business tax should increase. Nonetheless VAT rates are foreseen to increase but Luxembourg will strive to
keep the lowest regular rate in the EU (likely increasing from 15% to approximately 17%).
The system of tax advance agreements should also be standardized and modernized.
The proposal of the European Commission (dated 25 November 2013) to amend the Parent Subsidiary Directive should terminate the use of hybrid instruments throughout the European Union.
With respect to international tax aspects, Luxembourg intends to extend its double tax treaty network (24 new double tax treaties are currently under negotiation).
Q
What advice can you offer for optimising tax management and
balancing efficiency and compliance in the New Year?
Maintaining in Luxembourg a robust, ad hoc and commercially driven substance, commensurate with the activities undertaken, is a must and should continue to help taxpayers manage their tax affairs.
Q
Is there anything else you would like to add?
Luxembourg is a credible and efficient place through which many international players organise their global activities and investments. This is also supported by the stable and flexible Luxembourg regulatory framework.
Contact: Philippe Neefs Tax Partner
Tel: +352 22 51 51 5531 Email:
philippe.neefs@
kpmg.lu
Pierre Kreemer Tax Partner
Tel: +352 22 51 51 5502 Email:
pierre.kreemer@
kpmg.lu
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