Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Luxembourg

Luxembourg has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made. In the prior year report, Luxembourg had received three recommendations. Luxembourg has resolved these issues and therefore none of the prior year recommendations remain.

Luxembourg can legally issue four types of rulings within the scope of the transparency framework.

In practice, Luxembourg issued 1 922 past rulings; for the period 1 April 2016 - 31 December 2016, Luxembourg issued 73 future rulings; and for the year in review, Luxembourg issued 18 future rulings within the scope of the transparency framework.1 These rulings are published in a summarised and anonymised form in the annual report of the tax administration.

Peer input was received from four jurisdictions in respect of the exchanges of information on rulings received from Luxembourg. The input was generally positive, noting that information was complete, in a correct format and almost all received in a timely manner.

1. In addition to the rulings in the scope of the transparency framework Luxembourg issued 3 310 relating to “other types of rulings”.

1. These “other types of rulings” cover an additional category of rulings that Luxembourg identified, related to intragroup financing activities which in the absence of transparency may cause BEPS concerns. These rulings are not otherwise covered by one of the five categories within the scope of the transparency framework and are therefore defined as “other type of rulings”. Luxembourg exchanged these rulings with the relevant IF members using the transparency framework.

Introduction

798.  This peer review covers Luxembourg’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

799.  Luxembourg can legally issue the following four types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral APAs and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) unilateral downward adjustments; and (iv) permanent establishment rulings. To the extent that conduit rulings are provided, they are already covered under the second category. Competent tax offices are able to issue rulings, based on the opinion of the tax ruling commission.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

800.  For Luxembourg, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

801.  In the prior year peer review report, it was determined that Luxemburg’s undertakings to identify past rulings and all potential exchange jurisdictions have met all the ToR, except for identifying all past rulings in the relevant categories (ToR 1.4.1.1 and I.4.1.1.2). Therefore, Luxembourg was recommended to continue its work to complete its information-gathering process on past rulings as soon as possible.

802.  During the year in review, Luxembourg increased the number of officers in the team responsible for the information gathering process. This team has been able to identify all past rulings by 31 December 2017. It is therefore determined that Luxemburg’s undertakings to identify past rulings meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

803.  For Luxembourg, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

804.  In the prior year peer review report, it was determined that Luxembourg’s implementation of a new system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. Luxembourg’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision (ToR I.4.3)

805.  In the prior year peer review report, it was determined that Luxembourg’s review and supervision mechanism was sufficient to meet the minimum standard. Luxembourg’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

806.  Luxembourg has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

807.  Luxembourg has the necessary domestic legal basis to exchange information spontaneously. Luxembourg notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

808.  Luxembourg has international agreements permitting spontaneous exchange of information, including being a party to the (i) Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 75 jurisdictions.2

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

809.  In the prior year peer review report, Luxembourg’s process for the completion and exchange of templates was described. Luxembourg experienced significant delays in exchanging past rulings mostly due to the administrative burden which stems from the issuance of a large number of rulings within the scope of the transparency framework. The process met the ToR, except that Luxembourg was not able to timely exchange information on past rulings and therefore it was recommended to continue to ensure that all information on past rulings is exchanged as soon as possible, and to complete the exchange process by the end of 2017. Luxembourg exchanged all information on past rulings by 31 December 2017.

810.  The summary section of the template has to be completed in line with the internal FHTP suggested guidance. In order to clarify what information has to be provided, Luxembourg issued an internal guide which was shared with the advisory community in order to follow a standardised approach.

811.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	3 775	0	N/A	Exchange process for past rulings was completed by 31 December 2017. This includes exchanges with Inclusive Framework members that joined in 2017.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	74	0	N/A	N/A
Total	3 8491	0

1. In addition to the rulings in the scope of the transparency framework Luxembourg transmitted 5 606 exchanges relating to “other types of rulings” during the year in review.

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	35	1.5 months	0

Conclusion on section B

812.  Luxembourg has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges. Luxembourg has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	66	Belgium, Canada, China (People’s Republic of), Cyprus, Czech Republic, France, Germany, Hungary, Ireland, Israel, Italy, Korea, Malta, Netherlands, Poland, Russia, Singapore, Slovak Republic, South Africa, Spain, Switzerland, United Kingdom, United States
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	2 975	Austria, Azerbaijan, Barbados, Belgium, Brazil, Bulgaria, Canada, China (People’s Republic of), Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Guernsey, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Malaysia, Malta, Mauritius, Mexico, Monaco, Morocco, Netherlands, Norway, Panama, Poland, Portugal, Qatar, Romania, Russia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States, Viet Nam
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	205	Austria, Belgium, Brazil, Canada, China (People’s Republic of), Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Latvia, Malta, Mauritius, Monaco, Netherlands, Norway, Poland, Portugal, Romania, Singapore, South Africa, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom, United States
Permanent establishment rulings	603	Austria, Barbados, Belgium, Brazil, Bulgaria, Canada, China (People’s Republic of), Cyprus, Denmark, Finland, France, Germany, Hungary, Iceland, India, Ireland, Italy, Japan, Korea, Liechtenstein, Lithuania, Malaysia, Malta, Mexico, Netherlands, Norway, Panama, Poland, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom, United States
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	24	Belgium, Brazil, France, Hungary, Italy, Mauritius, Norway, Spain, Switzerland, United Kingdom, United States
Total	3 8731

1. Additional 5 606 exchanges of “other types of rulings” were transmitted by 31 December 2017 inter alia to the following countries: Australia, Austria, Bahrain, Belgium, Brazil, Canada, China (People’s Republic of), Cyprus, Czech Republic, Denmark, Finland, France, Germany, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Lithuania, Malaysia, Malta, Mauritius, Mexico, Netherlands, Norway, Panama, Poland, Portugal, Qatar, Russia, Singapore, Slovak Republic, South Africa, Spain, Sweden, United Arab Emirates, United Kingdom, United States.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

813.  The statistics for the year in review are as follows:

D. Matters related to intellectual property regimes (ToR I.4.1.3)

814.  Luxembourg offered an intellectual property regime (IP regime)3 that was abolished as of 1 July 2016 and is subject to transparency requirements under the Action 5 Report (OECD, 2015). It states that the identification of the benefitting taxpayers will occur as follows:

• New entrants benefitting from the grandfathered IP regime: in order to assist the heads of the corporate tax offices in accelerating the information gathering process, an IT research was launched with the aim to identify all the taxpayers who requested the application of the IP regime in their tax return. These lists were sent to the competent corporate tax offices which were asked to gather the necessary information and to transmit them to the Competent Authority for exchange of information without delay. The exchanges covered both information with respect to new taxpayers and new IP assets from existing taxpayers.

• Third category of IP assets: not applicable as the IP regime has been abolished.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable as the IP regime has been abolished.

815.  In addition, Luxembourg introduced a new IP regime which came into effect from 1 January 2018. Although this is after the year in review, it is noted that this regime is not subject to transparency requirements under the Action 5 report (OECD, 2015), because:

• New entrants benefitting from the grandfathered IP regime: as this is a new IP regime rather than a grandfathered IP regime, transparency on new entrants is not relevant.

• Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: 1) Private asset management company, 2) Investment company in risk capital, 3) Provision for fluctuations in reinsurance companies, and 4) Informal capital and partial exemption for income/gains derived from certain IP rights.

← 2.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Luxembourg also has Double Tax Agreements with Andorra, Armenia, Austria, Azerbaijan, Bahrain, Bailiwick of Guernsey, Barbados, Belgium, Brazil, Bulgaria, Canada, China (People’s Republic of), Cook Islands, Croatia, Czech Republic, Denmark, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Korea, Lao People’s Democratic Republic, Latvia, Liechtenstein, Lithuania, Malaysia, Malta, Mauritius, Mexico, Moldova, Monaco, Morocco, Netherlands, Norway, Panama, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Chinese Taipei, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, United Arab Emirates, United Kingdom, United States, Uzbekistan and Viet Nam.

← 3.  This regime is the Partial exemption for income/gains derived from certain IP rights.