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Luxembourg: Tax measures to be introduced January 2015

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Samantha Schmitz-Merle


Emilie Fister

The 2015 Budget was presented to parliament on October 15 by Finance Minister Pierre Gramegna. At this occasion, the 2015 Budget draft law and a draft law including a set of future measures (so-called Zukunftspak) were released, both of which include tax measures to be introduced from January 1 2015.

Advanced tax clearance formalisation

The draft law sets down a legal framework for advanced tax clearances (ATC). The provisions to be introduced will allow taxpayers to file an ATC request with the tax authorities. The request has to be filed in written form and must be duly motivated. The draft law explicitly states that the decision subsequently issued by the tax authorities will have a binding effect on the tax authorities, provided however that the taxpayer performs his transactions in line with the description made in his request. A draft Grand-Ducal Regulation clarifies some of the details of the procedure: formal conditions applicable to the ATC request, validity of ATCs limited to five years, setting up of a new ATC Commission in charge of delivering opinions on ATC requests. All in all, the (draft) procedure appears to be in many respects a formalisation of the procedure that has been in place for years. Still, to improve the ATC process, a time limit for the tax authorities to answer ATC requests would be welcome. Finally, the draft RGD does not provide any clarification regarding the payment of a fee that the tax authorities would require in future for issuing an ATC. It can therefore be expected that more details on the ATC procedure will become available in the near future.

Minimum corporate income tax rules to be amended

Based on the rules now in force, Luxembourg companies are subject to a minimum amount of corporate income tax (CIT), which varies depending on the activity they perform:

  • Minimum CIT of €3,210 (including a 7% solidarity surcharge) if more than 90% of their assets are financial assets, transferable securities, bank deposits and receivables against related parties; or

  • Minimum CIT, which ranges between €535 and €21,400 (including a 7% solidarity surcharge) depending on the level of the total balance sheet of the company.

To protect companies which have been incorporated recently as well as small or medium sized companies, it is planned to amend the minimum CIT rules to exclude from the scope of the €3,210 minimum CIT companies, the total balance sheet of which does not exceed €350,000.

This means that the minimum CIT of €3,210 will only apply if two cumulative conditions are met:

  • Minimum of 90% of financial assets; and

  • Total balance sheet higher than €350,000.

If these two cumulative conditions are not met, companies will pay a minimum tax which will vary depending on the level of their balance sheet (€535 if the total balance sheet does not exceed €350,000).

Transfer pricing rules to be amended

The government proposes to amend the transfer pricing provisions included in the Luxembourg Income Tax Law. At present, the tax authorities may determine the taxable income of Luxembourg taxpayers in case of a transfer of profit due to a special economic relationship with a non-resident taxpayer. The new provisions will allow tax authorities to make adjustments to the taxable base if it appears that the price charged by the taxpayer differs from the prices that would have been applied between independent enterprises for comparable transactions.

The following situations are targeted:

a) An enterprise that takes part, directly or indirectly, in the management, control or capital of another enterprise; or

b) The same persons take part, directly or indirectly, in the management, control or capital of two enterprises.

AND for (a) or (b) both enterprises are engaged in commercial or financial transactions the conditions of which differ from the ones which would apply between independent enterprises.

A Grand-Ducal decree will be issued to give details as to the application of the new provisions.

Transfer pricing documentation requirements

The draft law suggests amendments to the General Tax Law so as to introduce additional documentation requirements. A new provision is to be introduced which explicitly extends the general obligation of information and documentation to transactions involving associated enterprises. The purpose of this new provision is to clarify that the documentation requirements of the General Tax Law apply to transfer pricing matters and to impose on taxpayers an obligation to document transactions between associated enterprises.

Increase of VAT rates

With the exception of the super-reduced 3% VAT rate, all the VAT rates will be increased by two percentage points as of January 1 2015 (respectively from 6%, 12% and 15% to 8%, 14% and 17%). In its FAQ, the VAT authorities have clearly specified that down payments paid in 2014 in relation to goods or services received from Luxembourg providers would remain subject to the 2014 VAT rates even if the delivery of the good or services takes place after December 31 2014.

Samantha Schmitz-Merle (samantha.merle@atoz.lu) and Emilie Fister (Emilie.fister@atoz.lu)

Atoz – Taxand Luxembourg

Tel: +352 26 940 263 and +352 26 940 235

Website: www.atoz.lu

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