2016 was busy for tax until the very end: on 27 December 2016, the Luxembourg tax authorities released a circular, introducing new guidelines effective as from 1 January 2017, on the TP and substance requirements applicable to Luxembourg finance companies. This change should keep companies involved in financing activities and their advisers busy for a while. They will have to review transfer pricing policy and related transfer pricing documentation to make sure that these are in line with the new requirements. In February 2017, two additional circulars followed, one of which aims to clarify the direct tax implications of the application of VAT to directors' fees from 2017. Luxembourg continues to expand its extensive tax treaty network with the recent ratification of five additional tax treaties in December 2016. As far as indirect tax aspects are concerned, we comment the recent clarifications provided by the Luxembourg VAT authorities on the VAT treatment of SCSps. Lastly, we present in these Insights the challenges and pitfalls, but also the possible advantages of an asset manager setting up its own Luxembourg based AIFM and those of resorting to an already established third party AIFM.

At EU level, the EU Member States did not manage to reach an agreement before the end of 2016 on how to fight, beyond EU borders, against hybrid mismatches that create double non-taxation situations. However, they were able to reach an agreement shortly after, on 21 February 2017, on the new directive amending the hybrid mismatch rules of the Anti-Tax Avoidance Directive and extending the scope of the directive to transactions involving third countries. Regarding EU VAT aspects, we analyse two recent Advocate General Opinions on the VAT exemption for cost-sharing groups and the main potential Luxembourg implications, should the European Court of Justice decide to follow the Opinions.

At global level, the work on the fight against treaty abuse (Action 6 of the BEPS action plan) continues: the OECD has released a discussion draft for comments in order to clarify in which situations so-called non-CIV funds should not raise treaty-shopping concerns and should thus be granted tax treaty benefits. Finally, we come back to the Multilateral Instrument (MLI) aiming to implement the tax treaty-related measures of the OECD Base Erosion and Profit Shifting (BEPS) Project. The MLI, which was adopted by more than 100 countries in November of last year, is expected to be signed by most of these countries, including Luxembourg, in June 2017. We review the different options and alternatives included in the MLI and consider the choices Luxembourg should, in our view, make in order to remain attractive for international investments.

Download >> ATOZ Insights - April 2017

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