Insights - December 2019

After many years of reforms encouraged by the OECD's BEPS Action plan, it seems as if Luxembourg is now on the home stretch of the BEPS reform marathon.

In December, the Luxembourg parliament passed the last of the BEPS-inspired reforms in the pipeline: ATAD 2 and tax dispute resolution mechanisms. The adoption of the DAC 6 law, which has not been passed at the time of writing of the present Insights, should follow very soon. In these Insights, we describe the implications of the new Luxembourg rules implementing the EU Anti-Tax Avoidance Directive regarding hybrid mismatches with third countries (ATAD 2). We then provide an overview of the new Luxembourg procedure to resolve situations of double taxation between Luxembourg and one or more EU Member States based on the EU Directive on tax dispute resolution mechanisms. We also present the future new obligations of Luxembourg intermediaries in relation to the rules on mandatory automatic exchange of information in the field of taxation with reference to reportable cross-border arrangements (DAC 6).

In the run-up to the year-end events, the Luxembourg legislator also passed the 2020 budget law which introduces a handful of tax measures. The most significant tax measure of the 2020 budget states that tax rulings granted prior to 1 January 2015 will no longer be valid as from the end of tax year 2019. We present the implications of this measure.

At the international level, the OECD made proposals that aim at addressing the specific tax challenges created by the digitalisation of the economy. The proposals seek to answer how taxing rights on income generated from cross-border activities in the digital age should be allocated among jurisdictions and how to address ongoing risks from structures that allow MNEs to shift profit to jurisdictions where they are subject to no or very low taxation. Should they be adopted, these proposals may lead to changes far beyond the digital economy and may impact all kinds of industries and businesses. We describe the main features of the OECD proposals.

From a VAT point of view, Luxembourg implemented the EU Quick Fixes on harmonisation and simplification of VAT for cross-border trade. We describe the aim of these Quick Fixes. We also take the opportunity in this issue of Insights to describe the rules applicable for the VAT deduction on overhead costs through the analysis of the recent decision of the CJEU in the Cambridge University case.

Lastly, in our final...