Luxembourg transposed EU Directive 2016/881 into domestic legislation implementing the country-by-country reporting obligations
On 13 December 2016, the Luxembourg Parliament passed the law transposing EU Directive 2016/881 and implementing country-by-country ("CbC") reporting obligations into domestic legislation. The law of 23 December 2016 (“CbC Law”) was published on 27 December in the official gazette and applies as from 1 January 2016.
The CbC Law extends the scope of mandatory and international exchange of information on tax matters in imposing CbC reporting obligations to Multinational Enterprises Groups ("MNE Group(s)"). An MNE Group is any Group that includes two or more enterprises the tax residence for which is in different jurisdictions.
The CbC Law is in line with Action 13 of the OECD Base Erosion and Profit Shifting ("Action 13") initiative which notably sets out recommendations and a three-tiered standard documentation on CbC reporting with the global purpose of increasing tax transparency so that MNE Groups abandon certain (aggressive) practices and pay their fair share of tax in the country where profits are made in.
The CbC Law provides for two distinct (however complementary in certain cases) obligations: (i) notification and (ii) reporting.
To summarise, any MNE Group entity resident in Luxembourg for tax purposes (a “Constituent Entity”) will need to submit a prior notification to the Luxembourg tax authorities, and some of them will in certain circumstances be required to bear reporting obligations.
The notification consists for a Constituent Entity in indicating to the Luxembourg tax authorities what its role is within the MNE Group.
As per the CbC Law, a Constituent Entity can be:
i. either the ultimate parent entity (the “Parent Entity”), or
ii. a surrogate parent entity or a constituent entity in the meaning of the CdC Law (the “Designated Entity”) which is designated under certain circumstances to file the CbC report, or
iii. none of these.
A Constituent Entity which is the Parent Entity or a Designated Entity will qualify as “Reporting Entity” for Luxembourg tax purposes and will thus be subject to the reporting obligations described below (in addition to the notification requirement).
A Constituent Entity which is neither the Parent Entity nor a Designated Entity will have no reporting obligation but it will have yet to provide the Luxembourg tax authorities with indications on its role (as indicated above) and all information required to identify the MNE Group entity subject to the reporting obligation (such as identity and tax residency).
The CbC Law requires the Luxembourg tax resident Reporting Entity to file a CbC report with the Luxembourg tax authorities. In order to ensure an appropriate balancing of reporting burden and benefit to tax administrations, only MNE Groups with total consolidated group revenue equal or higher than EUR 750,000,000 will be required to file the CbC report.
In addition, in cases where the Reporting Entity (which is a Designated Entity) does not obtain all the required information due to the refusal of the ultimate parent entity to pass on relevant information, it will have to inform the Luxembourg tax authorities about such a refusal when filing the CbC report.
- Content of the CbC report
MNE Groups must provide annually and for each tax jurisdiction in which they do business certain information including the amount of revenue, the profit (or loss) before income tax, the income tax paid and accrued, the number of employees, the stated capital, the retained earnings and the tangible assets, the nature of the activities of the involved entities as well as any other additional information that could be relevant. This information should enable the tax authorities to react to harmful tax practices through changes in the legislation or adequate risk assessments and tax audits.
- Participating Jurisdictions
The mandatory exchange of CbC reports will be initiated with EU Member States but also with other jurisdictions which are signatories to the OECD Multilateral Competent Authority Agreement on the Exchange of CbC Reports foreseen by Action 13 (a Luxembourg Grand-Ducal Regulation will be published separately in this respect).
The first “Reporting Fiscal Year” as defined in the CbC Law is the year beginning on 1 January 2016 or after that date.
In principle, the notification made by each Constituent Entity must be submitted at the latest on the last day of the relevant Reporting Fiscal Year. As an exception, due to the “late” introduction of the CbC Law into Luxembourg legislation, the Luxembourg tax authorities confirmed that the deadline related to the notification obligation for fiscal year 2016 would be extended to 31 March 2017 (i.e., instead of 31 December 2016).
Then, the appropriate filing of the CbC report must be done annually at the latest 12 months following the end of the relevant Reporting Fiscal Year (e.g. at the latest 31 December 2017 for fiscal year 2016).
The Luxembourg tax authorities must pass on such information to the relevant foreign tax authorities within 15 months following the end of such Reporting Fiscal Year above mentioned (extended to 18 months for the first fiscal year to be reported).
In case the Constituent Entity(ies) and/or the Reporting Entity do not comply with their respective obligations of notification and filing of the CbC report, they may be subject to a penalty of up to EUR 250,000.
As per the latest information published by the Luxembourg tax authorities, it seems that both the notification and filing obligations will have to be made electronically via a secure platform available for online administrative procedures.