How tax compliance in Luxembourg is changing
Article 4 minute read

How tax compliance in Luxembourg is changing

06 June 2018

With global accountability the ‘new normal’, it’s more important than ever to understand your tax compliance obligations in Luxembourg.

Like many other governments around the world, Luxembourg lawmakers put several tax compliance and regulatory aspects together into a pot, covered it and let it simmer over a low heat until it reached a point that it was BEPS and OECD compliant, yet still very attractive for business.

Balancing appropriate tax accountability levels while remaining a magnet for international business is no mean feat, and the latest changes have not been without consequence for those operating in Luxembourg. That’s where working with local accounting and tax experts - such as TMF Luxembourg - is so important. We provide solutions that help to make sure your ventures continue to succeed, while maintaining a clean bill of tax health.

So how is the Luxembourg tax landscape changing? And what do you need to do to be compliant?

Personal tax liability for company directors and managers

The responsibility and liability of a company’s Director or Manager has changed in several key ways. They now bear the risk of being held personally liable for the payment of a tax liability, and non-compliance of the administered entity in certain circumstances – even for issues that began prior to the start of their mandate and after cessation of activity regarding issues that occurred during the mandate.

Liability can also arise from breaches of any type of law or regulation:

  1. individual (or collective) contractual liability to the company for mismanagement (Art 59, al 1 of the 1915 Companies Law)
  2. personal and joint liability to the entity or third parties for breaches of the 1915 Companies Law or the articles (Art 59, al2) or VAT law Art 67 – 1 and 2
  3. quasi tortious liability (Art. 1382sq of the civil code) which generally applies if a person commits a fault, whether by act or omission that causes a loss to the entity or a third party.

High degree of tax scrutiny

Luxembourg is increasingly a country of focus for global tax authorities when it comes to compliance and the arm’s length principle (ALP). The Grand Duchy is making many adjustments in its tax landscape as a result, and businesses must in turn follow suit by adhering to:

  • the mandatory e-filing procedure and platform for corporate income tax (CIT) returns and Country-by-Country (CbC) notifications and reports
  • the refreshed VAT e-filing platform
  • changing transfer pricing documentation requirements and methods
  • the introduction of quicker taxation processes
  • the improving process of tax collection
  • the improving process of information exchange
  • the automated audit process (still to come)
  • requests for further information for tax purposes
  • increasing late filing penalties and the higher chance of penalties being imposed.

The flow-on effect

Think all of the above is enough to worry about? The Luxembourg market spotlight is being shared by other parties such as foreign jurisdictions, banks, regulators and auditors. All are now looking into compliance from their own perspectives and angles, as it encompasses various fiscal regulations and requirements for, amongst others: pure risk management purposes, business purposes or compliance purposes.

In some cases, constraining actions can be brought against companies. They face a shifted responsibility and even penalties when a lack of compliance or collaboration is detected.

A breach of regulations generally falls under the scope of circular 17/650 of the CSSF (Luxembourg “Commission de Surveillance du Secteur Financier”), following new criminal provisions laid down in the law of 23 December 2016. This implemented the 2017 tax reform specifically concerned with the extension of the money laundering offence to aggravated tax fraud and tax evasion, extending it to a new category of serious underlying offences, namely ‘tax crimes related to direct and indirect taxes.’

What’s ahead

Continuing EU and OECD pressure means those doing business in Luxembourg can expect more of these changes to come.

A very recent example is DAC6 - freshly adopted by ECOFIN (the Economic and Financial Affairs Council) in relation to new transparency rules for intermediaries such as lawyers-advisors or accountants regarding the disclosure of ‘aggressive’ cross-border tax planning arrangements.

While at the time of publishing, Luxembourg had not taken any position on this yet, our team at TMF Luxembourg have our eyes and ears open for further developments so we can update our clients.

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Talk to us

TMF Luxembourg has a comprehensive, extended due diligence process for its client entities so that even any instances of minor non-compliance can be identified, reported and actioned with minimal delay.

Our ‘Tax Compliance & Regulatory Review’ solution provides the necessary checks to confirm that your entity/ies are compliant with the Luxembourg Legal framework with regard to:

  • Automatic Exchange of Information (eg. FATCA, CRS)
  • Transfer Pricing / CbC (eg. TP)
  • Direct Taxes (eg. CIT, MBT, NWT and WHT)
  • Indirect Taxes (eg. VAT).

If you’re looking for a complete and competitive tax compliance service in the above four areas, make an enquiry with us today.

Find out how we help our clients to successfully navigate global rules and regulations.

Written by

Gaëtan Grein

Former TMF Luxembourg Head of Tax Compliance

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