Luxembourg releases paper on tax transparency amid “Lux leaks” controversy

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Luxembourg releases paper on tax transparency amid “Lux leaks” controversy

On December 10 the Luxembourg Ministry of Finance released proposals relating to tax transparency and advance rulings. This move comes as no surprise in the light of the recent “Lux leaks” scandal and appears to be a strategic attempt at advertising Luxembourg’s willingness to fight tax evasion.

The position paper outlines that:

· A specific provision would be added to the tax law regarding transfer pricing documentation;

· From 2015, the tax administration would provide an annual report of all tax ruling issues for the year;

· The income tax law of Luxembourg would be modified to explicitly state that profit of related-party enterprises would be determined under an arm’s-length standard and then taxed according to OECD principles; and

· Requests for corporate tax rulings, filed with the tax office, would have to be submitted to the newly established supervisory commission (commission des decisions anticipées) which is authorised to issue a binding opinion on which the tax office’s advance ruling would be based.

According to the paper, these legislative changes, which are already considered administrative practice by the Luxembourg tax office, would be codified into law.

Perfect timing

There is no denying that the proposals were released in response to the “Lux leaks” scandal.

“The form and timing of the release was expected in the context of the recent “Lux leaks”. It is a move to clarify Luxembourg’s position that there should be more transparency around rulings,” said Keith O’Donnell of Atoz.

The proposals will come as no surprise to taxpayers who were already expecting significant changes to improve tax transparency in the country. The release of the proposals appears to be more of a publicity stunt to reassure the international tax community that Luxembourg is fully committed to tackling the fight against base erosion and profit shifting.

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