Tax

On 5 March 2019 the Luxembourg government filed the new finance bill n° 7450 (“Finance Bill”) with the Luxembourg parliament The most important corporate tax measures concern the reduction of the maximum corporate income tax (“CIT”) rate and the introduction of the option provided by the anti-tax avoidance directive (“ATAD”)[1] allowing for the application of the interest limitation rules at the level of a fiscal unity: For the time being CIT is levied at a rate of (i) 15% in case the net profits do not exceed EUR 25,000 and (ii) 18% in case the net profits exceed EUR 30,000. In case the net profits range between EUR 25,000 and EUR 30,000, the applicable rate is EUR 3,750 plus 33% of the net profits exceeding EUR 25,000. The Finance Bill envisages (i) increasing the amount of net profits subject to the minimum rate of 15% from EUR 25,000 to EUR 175,000, (ii) introducing an intermediary rate of EUR 26,250 plus 31% of the net profits exceeding EUR 175,000 in case the net profits range between EUR 175,000 and EUR 200,000 and (iii) lowering the marginal rate from the current 18% to 17% applicable in case the net profits exceed EUR 200,000. Accordingly, the aggregate rate of CIT, municipal business tax in the city of Luxembourg and the contribution to the unemployment fund would be reduced from the current 26.01% to 24.94%. Under the so-called interest limitation rules introduced by the ATAD and implemented into Luxembourg domestic tax law, net borrowing costs are as a rule only deductible up to the higher of 30% of the taxpayer's EBITDA or EUR 3 million. The net borrowing costs correspond to the amount by which the deductible borrowing costs of a taxpayer exceed taxable interest, revenues and other economically equivalent taxable revenues that the taxpayer receives[2]. The ATAD provided an option to apply the interest limitation rules on a group level in which case the exceeding borrowing costs and the EBITDA may be calculated at the level of the group. The Finance Bill accordingly envisages amending the Luxembourg fiscal unity level in order to give the tax payer the option of applying the rules on the fiscal unity or the individual company. Other tax measures contained in the Finance Bill are the introduction of the tax credit for the minimum wage (which is thus increased by EUR 100), the application of a reduced VAT rate of 3% to e-books, e-press as well as certain hygienic products, of 8% to certain phytosanitary products, and an increase in excise duties on petrol. The Finance Bill should enter into force on the 1 May 2019, the reduction of the CIT rate being however applicable to the tax year 2019 and the amendment to the interest limitation rules being applicable as from 1 January 2019. The measures included in the Finance Bill were largely expected since they had already been announced by the government upon the agreement of the coalition plan[3]. According to the government, these measures are necessary to ensure Luxembourg’s overall competitiveness in compliance with EU law.   [1] Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market. [2] For an in-depth description of the rules, please refer to our newsflash available here. [3] More information on our newsflash available here.  For the PDF version, please click here.

On 26 February 2019 the Grand Chamber of the Court of Justice of the European Union (“CJEU”) rendered 2 judgments regarding the non-application of the Parent Subsidiary Directive (Council Directive 90/435/EEC – ”PSD") and the Interest and Royalties Directive (Council Directive 2003/49/EC – “IRD”) in case of fraud or abuse, even in the absence of any domestic anti-abuse legislation. In this context, the judgements provide useful guidance on the concepts of abuse and beneficial ownership. Abuse concept According to the CJEU, it is settled case-law that there is, in EU law, a general legal principle that EU law cannot be relied on for abusive or fraudulent ends. Accordingly, a taxpayer cannot enjoy a right or advantage arising from EU law where the transaction at issue is purely artificial economically and is designed to circumvent the application of the legislation of the Member State concerned. The proof of an abusive practice requires, first, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of such rules has not been achieved and, second, a subjective element consisting in the intention to obtain an advantage from the EU rules by artificially creating the conditions laid down for obtaining it. Beneficial owner concept The CJEU pointed out that the concept of “beneficial owner of the interest” in the IRD cannot refer to concepts of national law that vary in scope. The concept must be interpreted as designating an entity which actually benefits from the interest that is paid to it. The IRD confirms this reference to economic reality by stating that a company of a Member State is to be treated as the beneficial owner of interest or royalties only if it receives those payments for its own benefit and not as an intermediary, such as an agent, trustee or authorised signatory, for some other person. The term “beneficial owner “concerns not a formally identified recipient but rather the entity which benefits economically from the interest received and accordingly has the power to freely determine the use to which it is put. Only an entity established in the EU can be a beneficial owner of interest for the purposes of the IRD and may then be entitled to the exemption provided for therein. In addition the CJEU confirmed that the IRD draws upon Article 11 of the OECD 1996 Model Tax Convention and pursues the same objective, namely avoiding international double taxation. Please click here to read our in-depth analysis of these cases.

On 15 June 2018 the Luxembourg government approved 2 new bills of law: ATAD Bill and MLI Bill On 15 June 2018 the Luxembourg government approved 2 new bills of law: - the first bill of law (“ATAD Bill”) implements the provisions of the Council Directive (EU) 2016/1164 – the so-called Anti-Tax Avoidance Directive (“ATAD”); and - the second bill of law (“MLI Bill”) approves the OECD’s Multilateral Agreement (“MLI”). The ATAD was adopted by the Council of the European Union on 28 June 2016 in order to implement the OECD’s recommendations in its Base Erosion and Profit Shifting (“BEPS”) Project. Accordingly, the ATAD foresees new rules to be adopted by all EU Member States in the following 5 specific areas: Interest limitation rules Exit taxation rules GAAR CFC rules Hybrid mismatch rules The ATAD Bill transposes these rules into Luxembourg domestic law, using all the flexibility of the ATAD regarding the optional provision for the sake of the continuity, legal certainty and simplification. In addition, the ATAD Bill introduces 2 additional measures not foreseen by the ATAD, i.e. amendments to the roll-over regime on capital gains and the permanent establishment definition. The ATAD Bill has already been filed with the Luxembourg parliament and the text is publicly available. >> For a detailed description thereof, please click here_ The MLI was adopted by the OECD on 24 November 2016, together with its explanatory statements, in accordance with Action 14 of the BEPS Project. The MLI implements a number of tax treaty related measures foreseen by the BEPS Project in the following areas: Action 2: Hybrid mismatches Action 6: Treaty abuse Action 7: Avoidance of PE status Action 14: Dispute resolution The MLI Bill has not yet been filed with the Luxembourg parliament and the text is therefore not yet publicly available. We will provide a detailed analysis thereof once the text becomes available. Both the ATAD Bill and the MLI Bill were expected for some time in order to allow for the timely implementation of the ATAD and ratification of the MLI. The ATAD Bill and the MLI Bill will result in significant changes in Luxembourg domestic tax law and bilateral treaties. Our tax partners and your usual contacts at Arendt & Medernach are at your disposal to further assess the impact of these bills on your Luxembourg activities.

On 5 July 2018, the Court of Justice of the European Union (“CJEU”) released a welcome decision in the Marle Participations case (C-320/17) concerning the deduction of input VAT by a holding company on costs incurred in relation to acquisitions and sales of shares in subsidiaries. Background The background was the following. Marle Participations (“Marle”) is the holding company of the Marle group. In addition to its shareholding activities, Marle also rents out buildings to group subsidiaries. In the context of a group restructuring, Marle was involved in acquisitions and sales of shares in subsidiaries. In this respect, Marle applied a full input VAT deduction right on expenses relating to this restructuring which was later rejected by the French tax authorities. Marle brought the case before the Conseil d’Etat which referred to the CJEU on the question of the input VAT deduction on restructuring expenses by a holding company performing taxable real property lease activities for its subsidiaries. Decision The CJEU first drew attention to its well-established case-law whereby a holding company benefits from an input VAT deduction right in the event that it is involved directly or indirectly in the management of its subsidiaries through the supply of transactions subject to VAT such as administrative, accounting, financial, commercial, information technology and technical services. In this respect, the Court further specified that these examples of activities are however not exhaustive meaning that the term “involvement in the subsidiary’s’ management” should be understood as covering all transactions constituting a taxable economic activity. As a result, a holding company which provides property lease activities to its subsidiaries should be considered to be involved in the management of its subsidiaries if (i) the supply of letting services is made on a continuing basis, (ii) the supply is taxable and (iii) it is carried out for consideration implying the existence of a direct link between the services rendered and the considerations received. With regard to the extent of the holding company’s input VAT deduction right, the CJEU referred to its settled case-law: if a holding company is involved in the management of all its subsidiaries, expenses connected with the transactions in subsidiaries’ shares are deemed to form part of the company’s general costs implying that the input VAT on such expenses would be fully deductible; if a holding company is only involved in the management of some of its subsidiaries, expenses connected with the transactions in subsidiaries’ shares should only be regarded as partially belonging to the general expenses meaning that the deduction of input VAT on such expenses should be limited accordingly. Moreover, when assessing any limitation of the input VAT deduction right of a holding company, the CJEU emphasized that neither the taxable turnover of the holding company nor the income derived from the holding of subsidiaries’ shares should be taken into account. End of the story? Through this case-law, the CJEU finally clarified the never-ending story of the VAT deduction of active holding companies as follows: involvement in the management of subsidiaries can be achieved through the permanent performance of any kind of economic activity, provided it is taxable and duly remunerated; if a holding company is involved in the management of all its subsidiaries, it should benefit from a full input VAT deduction right in respect of general expenses (such as expenses incurred in relation to transactions in subsidiaries’ shares); and provided the conditions are met, holding companies should benefit from a full input VAT deduction right, irrespective of the result of their economic activity (i.e. with no regard to the importance of the taxable turnover compared to the general expenses). At first view, this case-law is of the utmost importance as it supports the full VAT recovery on acquisition, disposal and recurring costs incurred by active holding companies (irrespective of the importance of the activation of the company). Our VAT team is at your disposal to further discuss into details any positive consequences this case-law could mean for your past and current files and how to deal with it in practice. >>Click here for the pdf version of this newsflash 

On 3 July 2018, the OECD launched a consultation on the transfer pricing of financial transactions by publishing the first draft of a new chapter of the OECD Transfer Pricing Guidelines for Tax Administrations and Multinational Enterprises On 3 July 2018, the OECD launched a consultation on the transfer pricing of financial transactions by publishing the first draft of a new chapter of the OECD Transfer Pricing Guidelines for Tax Administrations and Multinational Enterprises. The consultation comments are invited until the end of the consultation period on 7 September 2018. This new chapter on financial transactions can help to fill a large gap in the Transfer Pricing Guidelines, which has resulted in high profile disputes in this area having to be settled by courts around the world on the basis of expert evidence on how independent parties approach such transactions. The issues covered by the new chapter are especially relevant to Luxembourg, given its attractiveness to financial institutions and as a location for non-financial companies to place their group treasury centres. The draft proposes some controversial approaches and whatever form the final guidance takes, it is clear that all businesses with related party financial transactions will need to review how they price them, that the agreements are properly worded, that both parties are able to perform their roles in the transaction and that they actually do so in practice. The first part of the discussion draft provides guidance on the situations in which loans can be recharacterised as debt, while the second part provides guidance on the pricing of financial transactions such as treasury services, loans, cash pooling, hedging, financial guarantees and captive insurance. >>Click here for the full version of this newsflash

The bill of law n°7278 implementing the VAT group into Luxembourg law was voted on 26 July 2018 by the Chamber of Deputies. The bill of law n°7278 implementing the VAT group into Luxembourg law was voted on 26 July 2018 by the ChamberThe bill of law n°7278 implementing the VAT group into Luxembourg law, as outlined in our previous Newsflash on 13 April 2018, was voted on 26 July 2018 by the Chamber of Deputies. This long-awaited VAT group regime, which will enter into force on 31 July 2018, was absolutely necessary in order to replace the current Independent Group of Persons regime (previously used in the financial sector but now restricted to sectors of public interest) and to preserve competitiveness of Luxembourg compared to other EU Member States that have implemented similar VAT group regimes. Your Arendt VAT team is at your disposal to provide you with further insights into this new optional VAT regime and its positive impact on your business. >>Click here to view the pdf vesion of this newsflash 

Regulation (EU) 2017/1991 amending regulations (EU) No 345/2013 on European Venture Capital Funds (EuVECAs) and (EU) No 346/2013 on European Social Entrepreneurship Funds (EuSEFs) (together, the “Regulations”) has been published today in the Official Journal of the European Union and will be applicable as of 1 March 2018. The amendments to the Regulations are a result of the European Commission’s review process launched in 2016 which identified a lack of success of the two Regulations, especially that of the EuSEF regulation. Three main obstacles to a widespread use of the labels were identified during such review process: (i) the existence of certain limitations imposed on managers (both in term of size and dual requirements imposed under the regulations and the European alternative investment fund managers’ directive (AIFMD)), (ii) the scope of eligible assets and (iii) the amount of costs/regulatory fees. The amending regulation aims at eliminating such obstacles, or at least at reducing their impact. This is achieved through the following main measures: - Fully authorised alternative investment fund managers (A​IFMs) will be permitted to manage EuVECAs and EuSEFs as of day one. The previous wording of the Regulations was somewhat unclear and seemed to only permit above-threshold AIFMs to act for EuVECAs and EuSEFs if they had become authorised at some point in time after initial on-boarding of the funds. This clarification now eliminates all uncertainty and clearly provides for the possibility of having fully authorised AIFMs manage EuVECAs and EuSEFs from the outset. - The definition of “qualifying portfolio undertaking” for EuVECAs has been broadened. Previously, such definition only covered so-called small and medium-sized enterprises (SMEs), i.e. unlisted companies with fewer than 250 employees, an annual turnover of less than EUR 50 million and an annual balance sheet of less than EUR 43 million. The definition has now been expanded to cover all unlisted companies with up to 499 employees or entities listed on an SME growth market. Furthermore, these criteria need only be met at the time of initial funding, further facilitating follow-on investments. - The initial capital and own funds requirements has been harmonised. In the past, each national competent authority had discretion to assess the appropriate level of initial capital and own funds due to an intentional lack of explicit legislative guidance. In practice, this led to a significant amount of regulatory arbitrage with certain regulators applying the rather strict requirements of the AIFMD and others setting fixed amounts, which in certain cases were significantly less than those resulting from the first mentioned approach. The initial capital is now set at EUR 50,000 and the own funds must now never be less than one eighth of the preceding year’s fixed overhead costs of the manager. Additional amounts will be required in case the assets under management exceed EUR 250 million. - Finally, the roles of and interaction between the competent authorities of the fund and the manager have been clarified in order to avoid uncertainty and redundancies.​ It remains to be seen whether the aforementioned amendments will increase market acceptance of the EuVECA and EuSEF labels, especially as the most obvious measure for increasing their success would have been granting tax incentives for the use of such labels (as already stated by numerous stakeholders during the consultation process performed prior to adopting the initial Regulations). Nonetheless, it should be noted that the EuVECA and EuSEF labels do grant significant practical advantages not accessible to other alternative investment funds managed by authorised AIFMs, the most noteworthy being the absence of a legal requirement to appoint a depositary and a simplified marketing process. The latter applies both in terms of eligible investors (as marketing to other sophisticated investors not qualifying as “professional investors” within the meaning of the AIFMD is permitted) and the fact that there is no waiting period before undertaking marketing activities once the marketing notification has been submitted to the regulatory authority (whereas a marketing notification submitted in accordance with the AIFMD can entail a waiting period of up to 20 business days). Moreover, under Solvency II an investment in EuVECAs and EuSEFs will generally be more attractive than investments in most other types of alternative investment funds. Luxembourg Newsflash - The amended EuVECA and EuSEF Regulations 

​As announced by the Luxembourg Finance Minister in his presentation of the 2018 budget bill, the government introduced certain amendments to the current tax regime of stock option plans. In particular, the valuation of freely negotiable options will be increased as of 1 January 2018 from 17.5% to 30% of the value of the underlying stock. The new Circular Letter also defines which reasonable conditions need to be complied with as prerequisite for such valuation. Finally, certain changes as regards the notification requirements have been introduced. The final tax treatment of the granting of freely negotiable options remains however still advantageous. > click here to read the full Newsflash and have more details on the topics mentioned above​

On 11 October 2017, and the last time before next year’s parliamentary elections, the current Luxembourg Finance Minister presented the budget law for 2018 to the Parliament (Chambre des Députés). The main tax-related provisions of the Bill of Law N° 7200 (“Bill”) as laid out below in more detail include inter alia: Changes to the capital gains tax treatment of business restructurings; Improvements to the investment tax credit system; Extension of the VAT exemption under Article 44, 1, d) of the Luxembourg VAT law to the management of collective internal funds held by a life-insurance undertaking;​ Introduction of 3 assessment options for resident spouses/partners; Extension of the inheritance tax exemption to spouses/partners without common descendants; and  Amendment to the procedure of exchange of information upon request in tax matters further to the Court of Justice of the European Union (“CJEU”) Berlioz case law (C-682/15).

On 9 July the United Arab Emirates (UAE) Ministry of Finance (MOF) published an update of the Value Added Tax (VAT) FAQ section of its website.      Following on the awareness workshops launched by the MOF, such update provides some clarification on substantive and procedural aspects pertaining to the implication and implementation of VAT.   Among the key questions raised, the following may especially be of interest to you:  - How will real estate, insurance, financial services or Islamic finance be treated? - Which sectors will be zero rated and which ones will be exempt? - Partial or full exemption? - Is there a possibility to claim VAT? - How quickly will refunds be released? - How can one object to the decisions of the Federal Tax Authority? The full Q&A is available on this link. The updates are marked as "New". This update means a further step towards the GCC-wide implementation of VAT. Your business should ensure to take the necessary actions to be prepared to deal with those regulatory novelties. How can we assist you? Arendt & Medernach: facing new challenges through experience and expertise With the introduction of VAT in the GCC region, our recognised expertise and in-depth experience in the VAT field will provide you with top-quality value added services through a local presence close to the business of our clients. Our “VAT & Tax Law” practice area, the largest Luxembourg practice area in its field which has received the most awards and recognition from the legal directories ranking Luxembourg law firms, can rely on a team of around 40 experts, divided into dedicated VAT, transfer pricing and tax compliance teams who provide bespoke tax advice and assistance to international clients. Client service excellence provided in face-to-face advice​ For more than 25 years, Arendt & Medernach has been the leading independent business law firm in Luxembourg. The firm’s international team of 325 legal professionals represents Luxembourg and foreign clients in all areas of Luxembourg business law from its head office in Luxembourg and its representative offices in Dubai, Hong Kong, London, Moscow, New York and Paris. From our Dubai office, our VAT experts will provide clients in the UAE with face-to-face advice and assistance, supported by a dedicated and specialised team in Luxembourg. A tailor-made service offer​ - VAT scan: order a VAT scan of your business to obtain a rapid and concrete diagnosis of your VAT compliance. - Training sessions: be compliant. In order to help you to become compliant with the new VAT regulation, Arendt Institute is organising training sessions. Should you be interested in teaming up with our VAT advisors to evaluate the impact of the upcoming tax reforms across the Middle East on your business and define concrete action points to face those changes, or should you need dedicated training sessions, please do not hesitate to contact your dedicated team.

On 31 July 2017, the President of the United Arab Emirates (the “UAE”) issued the new Tax Procedures Law (the “Law”). This Law contributes to build the UAE’s tax system, to regulate the administration and collection of taxes and most importantly, to clarify the respective rights and obligations between the Federal Tax Authority (the “FTA”) and the taxpayer. The Law provides a set of general procedures and rules to be applied to all taxes to be introduced in the UAE, namely value added tax (the “VAT”) and excise duties. In this respect, the Law covers tax procedures including, among others, audits, objections, refunds, collection, as well as obligations, which includes tax registration, compliance and payment, as summarised below: Records  The Law requires any person conducting any business to keep accounting records and commercial books as well as any tax-related information determined by the relevant tax law. Tax returns, data, information, records and documents related to tax to be submitted to the FTA are required to be in Arabic. The FTA may however accept these documents in any other language to the extent that the person is able to provide, at its own expense, a translated copy into Arabic upon FTA’s request. Tax registration Any taxable person has to comply with its registration obligations specified under the relevant tax laws (e.g. VAT). In this respect, the registrant must communicate its tax registration number (TRN) in all correspondences and transactions with the FTA. Tax compliance Once registered, each taxable person has to, within the time limit, prepare and file tax returns as well as settle any tax due in accordance with the Law and the relevant tax law. Each taxpayer is responsible for the accuracy of the information and data in the tax returns and the FTA reserved the right to disregard a tax return if it does not include the basic information determined by the relevant tax law. Tax agents The tax agent is any person appointed on behalf of another person to represent the latter before the FTA and to assist him in his tax affaires without prejudice to that person’s responsibility. In this respect, the Law provides that tax agents must register with the FTA and satisfy specific conditions such as being of good conduct and behavior, never being convicted of a crime, holding an accredited qualification, being medically fit to exercise the profession and holding a professional indemnity insurance. Tax audits The FTA may perform tax audits on any person to determine its compliance with the provision of the relevant tax laws. Such audits are performed at the person’s office or at any place of business in which case it must be informed at least 5 business days prior to the tax audit. While conducting a tax audit, the tax auditors have the rights to obtain original records or copies, to take samples of the goods, equipment or other assets available at the place of business. Tax and penalties assessment Under certain circumstances (e.g. the taxable person submits an incorrect tax return, fails to submit a tax return in the timeframe or fails to settle the tax due etc.), the FTA will issue a tax assessment in order to determine the tax due by the taxpayer. Besides, the Law also contains lists of violations which may lead to the issuance of an administrative penalties assessment by the FTA if the taxpayer is responsible for such infringements. The timeframe for the FTA’s tax assessments is in general 5 years after the relevant tax period. Nevertheless, in case of proof for tax evasion or non-registration for tax purposes, it is increased to a period up to 15 years. Refund and collection A taxpayer could apply for a refund of any tax (or administrative penalties) paid to the extent it is entitled to a refund under the relevant tax law and the paid amounts exceed the amounts effectively due. Where a taxpayer fails to settle any tax due, the FTA would issue a notice requiring the payment of outstanding tax within 20 business days from the date of notification. If the taxpayer fails to make such payment within the timeframe, the General Director of the FTA (“Director General”) would issue a decision obliging the taxpayer to settle the outstanding tax within 5 business days from the issuance of the decision. Such a decision should be treated as an executory instrument for the purposes of enforcement through the execution judge at a competent court. Reconsideration, objection to the committee and challenges before courts Regarding any of FTA’s decisions, a person has the right to submit a request of reconsideration to the FTA within 20 business days from the notification. In case of rejection, the concerned person could introduce an objection to the Tax Disputes Resolution Committee.

Following the Luxembourg case C-274/15, the series of cases relating to the scope of the cost-sharing VAT exemption also referred to as “Independent Group of Persons” (“IGP”) continues with the release today of three judgements by the Court of Justice of the EU (“CJUE”): Aviva (C-605/15), DNB Banka (C-326/15) and European Commission v Federal Republic of Germany (C-616/15). In these three cases, a major step has been taken as the CJUE puts an end to the current debate on the scope of the VAT exemption regime for IGPs and sends a shock wave through the current practice within the EU as regards to the use of IGPs in the financial and insurance sectors. The CJUE adopts the same position in the three cases by mainly addressing the issue of the scope of the IGP exemption foreseen under article 132, 1, f) of the EU VAT Directive: does this VAT exemption apply to IGPs whose members carry out financial or insurance activities? Without analysing the other questions raised, the judgements of the CJUE focus on the following elements:   - The CJUE clearly provides that the VAT exemption of article 132, 1, f) of the EU VAT Directive only covers members which carry out an activity in the public interest. Therefore, no VAT exemption on this ground shall apply to members running financial or insurance activities, even though they are mainly VAT exempt or fall outside the scope of VAT. Whereas the letter of the text does not contain such restriction, the CJUE refers to the context and the intention of the legislator to justify its position, following the Opinions of the Advocate General, Julianne Kokott delivered on 1st March 2017. Indeed, this VAT exemption is included under the Chapter 2 related to “Exemptions for certain activities in the public interest” whereas the Chapter 3 refers to “Exemption for other activities” including financial and insurance. As a result, the CJUE considered that the exemption applicable to IGPs has to be distinguished from the other exemptions and is exclusively dedicated to activities in public interest.   - As regards the particular point raised in the European Commission v Federal Republic of Germany case (C-616/15), the CJUE specified that the scope of the cost-sharing VAT exemption should not be limited to certain professions only (i.e. in the medical sector).   - As regards to the retroactivity of these judgements, the CJUE is conscious that the practice in some Member States has taken an opposite direction notably based on the interpretation of previous judgements taken (such as the case Taksatorringen (C-8/01)) and it therefore reiterates the principles of legal certainty and non-retroactivity to national jurisdictions. These judgements radically change the IGP regime as used in Luxembourg so that they remove the main point of interest for the financial and insurance sector. Considering this, the question of the implementation of the VAT group system as set out under article 11 of the EU VAT Directive becomes a necessary alternative for Luxembourg and has to be further considered. In any case, any cost-sharing arrangement currently in place should be reviewed and restructuration should seriously be envisaged. For further guidance, please do not hesitate to contact Bruno Gasparotto or your usual contact within the team.​

On 27 August 2017, the United Arab Emirates (the "UAE") published the text of its domestic Value Added Tax (the "VAT") Law, shortly after releasing the text of its Excise Tax Law last week, and the Federal Tax Procedures Law earlier this month. It will be followed by implementing regulations, which will provide more detail on application of the VAT Law. The UAE Government is still planning to introduce VAT on 1 January 2018. The main features of the new tax may be summarised as follows: - The standard VAT rate of 5% will be applied to all transactions involving goods and services (e.g. food, consulting services, maintenance works etc.) that are not VAT-exempt or zero-rated (the zero rate means that there no charge of VAT on the supply but allows a full VAT recovery for the supplier, which is not possible for VAT-exempt supplies). - The zero rate will be introduced on some services, such as international transportation of passengers, education and health care. The zero rate will also apply to some supplies of goods, including crude oil and gas, gold and precious metals, as well as to the first supply of residential buildings within 3 years of their completion. - A VAT exemption will be available for some real estate transactions, local passenger transportation and some financial services. - The VAT treatment of free zones will be clarified in the implementing regulations. - Specific rules will apply to the transfer of vouchers for goods or services, the transfer of a business, agent/commissionaire activities and to composite supplies. - The public sector will also be impacted by the VAT Law as some transactions by government entities will be subject to VAT. - The concept of a Tax Group (VAT unity) will be introduced. - General rules about the date of supply and the place of supply are provided in the VAT Law as well as many other aspects in relation to VAT deduction, bad debts, capital assets schemes, etc. - Businesses have to register with the tax authorities when they expect to meet the mandatory registration threshold (expected to be of AED 375,000). It should be possible to start the VAT registration request from the middle of September 2017 on the website of the UAE government (http://www.tax.gov.ae/). The new Federal Tax Authority (the "FTA") website has been launched and can be accessed here. You can access the UAE VAT law in Arabic and English. Many aspects still have to be explained and detailed by the government in the implementing regulations that are expected to be issued shortly. Should you need any assistance in identifying and optimising the VAT issues affecting your organisation or should you need any support to accompany you in the implementation of the VAT Law, please feel free to contact us.

On 31 July 2017, the President of the United Arab Emirates (the “UAE”) issued the new Tax Procedures Law (the “Law”). This Law contributes to build the UAE’s tax system, to regulate the administration and collection of taxes and most importantly, to clarify the respective rights and obligations between the Federal Tax Authority (the “FTA”) and the taxpayer. The Law provides a set of general procedures and rules to be applied to all taxes to be introduced in the UAE, namely value added tax (the “VAT”) and excise duties. In this respect, the Law covers tax procedures including, among others, audits, objections, refunds, collection, as well as obligations, which includes tax registration, compliance and payment, as summarised below: Records The Law requires any person conducting any business to keep accounting records and commercial books as well as any tax-related information determined by the relevant tax law. Tax returns, data, information, records and documents related to tax to be submitted to the FTA are required to be in Arabic. The FTA may however accept these documents in any other language to the extent that the person is able to provide, at its own expense, a translated copy into Arabic upon FTA’s request. Tax registration Any taxable person has to comply with its registration obligations specified under the relevant tax laws (e.g. VAT). In this respect, the registrant must communicate its tax registration number (TRN) in all correspondences and transactions with the FTA. Tax compliance Once registered, each taxable person has to, within the time limit, prepare and file tax returns as well as settle any tax due in accordance with the Law and the relevant tax law. Each taxpayer is responsible for the accuracy of the information and data in the tax returns and the FTA reserved the right to disregard a tax return if it does not include the basic information determined by the relevant tax law. Tax agents The tax agent is any person appointed on behalf of another person to represent the latter before the FTA and to assist him in his tax affaires without prejudice to that person’s responsibility. In this respect, the Law provides that tax agents must register with the FTA and satisfy specific conditions such as being of good conduct and behavior, never being convicted of a crime, holding an accredited qualification, being medically fit to exercise the profession and holding a professional indemnity insurance. Tax audits The FTA may perform tax audits on any person to determine its compliance with the provision of the relevant tax laws. Such audits are performed at the person’s office or at any place of business in which case it must be informed at least 5 business days prior to the tax audit. While conducting a tax audit, the tax auditors have the rights to obtain original records or copies, to take samples of the goods, equipment or other assets available at the place of business. Tax and penalties assessment Under certain circumstances (e.g. the taxable person submits an incorrect tax return, fails to submit a tax return in the timeframe or fails to settle the tax due etc.), the FTA will issue a tax assessment in order to determine the tax due by the taxpayer. Besides, the Law also contains lists of violations which may lead to the issuance of an administrative penalties assessment by the FTA if the taxpayer is responsible for such infringements. The timeframe for the FTA’s tax assessments is in general 5 years after the relevant tax period. Nevertheless, in case of proof for tax evasion or non-registration for tax purposes, it is increased to a period up to 15 years. Refund and collection A taxpayer could apply for a refund of any tax (or administrative penalties) paid to the extent it is entitled to a refund under the relevant tax law and the paid amounts exceed the amounts effectively due. Where a taxpayer fails to settle any tax due, the FTA would issue a notice requiring the payment of outstanding tax within 20 business days from the date of notification. If the taxpayer fails to make such payment within the timeframe, the General Director of the FTA (“Director General”) would issue a decision obliging the taxpayer to settle the outstanding tax within 5 business days from the issuance of the decision. Such a decision should be treated as an executory instrument for the purposes of enforcement through the execution judge at a competent court. Reconsideration, objection to the committee and challenges before courts Regarding any of FTA’s decisions, a person has the right to submit a request of reconsideration to the FTA within 20 business days from the notification. In case of rejection, the concerned person could introduce an objection to the Tax Disputes Resolution Committee. Click here to read the full text of the Law (with an unofficial English translation), available on the Ministry of Finance’s website

On 7 June 2017, the official ceremony for the signing of the multilateral instrument (“MLI”) took place bringing to a close a process initiated last year when a consensus was reached on the wording of the MLI on 24 November 2016 (see also our newsflash dated 2 December 2016, available on our website www.arendt.com section Publications/Newsflash). Background On 7 June 2017, the official ceremony for the signing of the multilateral instrument (“MLI”) took place bringing to a close a process initiated last year when a consensus was reached on the wording of the MLI on 24 November 2016 (see also our newsflash dated 2 December 2016, available on our website www.arendt.com section Publications/Newsflash). The MLI has been negotiated by more than 100 jurisdictions and aims at swiftly implementing the tax treaty measures contained in Actions 2, 6, 7, and 14 of the Base Erosion Profit Shifting (“BEPS”) Project of the Organisation for Economic Cooperation and Development (“OECD”). The Luxembourg government has now communicated its reservations and notifications on the MLI. We have provided below a high level overview of the main reservations and notifications made by Luxembourg. On a general note, Luxembourg has adopted a restrictive approach. Key features include the principal purpose test (“PPT”) clause and an improved dispute mechanism system. As stated in article 2 of the MLI, Luxembourg has declared that the related provisions will apply to all its double tax treaties that are in force, currently 81 treaties (“Covered Agreements”). The list of these Covered Agreements can be found here: http://www.impotsdirects.public.lu/fr/conventions/conv_vig.html.   Treaty abuse and inception of the PPT The introduction of the PPT clause was necessary to comply with the minimum standard set in Action 6 of BEPS. Luxembourg will introduce a PPT clause, as well as an extended wording in the preambles of its Covered Agreements, clarifying that Covered Agreements may not be used to create opportunities for no or reduced taxation through tax evasion. In a nutshell, the PPT clause aims at denying the benefits of Covered Agreements to taxpayers where there is evidence that a given arrangement or transaction was set up for the principal purpose of obtaining that benefit.   Dispute settlement procedures The MLI intends to harmonise and render more efficient the mutual agreement and dispute settlement procedures in double tax treaties. Luxembourg has opted to include the reformed dispute resolution mechanisms (arbitration and MAP) under the MLI to its Covered Agreements.   Timeline In order for the MLI to enter into force, it is necessary for a minimum of countries to ratify it. In addition, a waiting period has been included for before the end of which the changes cannot affect the provisions of the Covered Agreements. These periods differ depending on whether the provisions of the MLI relate to withholding tax or to other taxes. At the very earliest, it is expected that the MLI provisions related to withholding tax will enter into force on 1 January 2019. Other provisions of the MLI may come into force earlier, but not earlier than on 1 January 2018. Although Luxembourg is expected to ratify the MLI swiftly, significant delays can be expected, given the fact that both contracting parties to a Covered Agreement must ratify the MLI for the changes to apply to that Covered Agreement.   Concluding remarks As expected, Luxembourg has adopted a restrictive approach of the provisions provided for under the MLI and has sought to limit the scope and impacts of this new layer of international legislation to the minimum standards required. However, the new PPT and the impact on structures and the application of tax treaties need to be carefully monitored in the future for new and existing structures.

Luxembourg, May 2017 – Arendt & Medernach is proud to have been named “Luxembourg Law firm of the year” both by Chambers & Partners and IFLR (International Financial Law Review). The prestigious trophies were both received in April in London at the respective ceremonies of the Chambers Europe Awards 2017 and the IFLR European Awards 2017. Luxembourg Law firm of the year at the Chambers Europe Awards 2017 This award recognises the firm's pre-eminence in key practice areas in its jurisdiction. It takes into account strategic growth, market feedback and involvement in market-leading deals. It also reflects notable achievements over the past 12 months including outstanding work and excellence in client service. The firm has been chosen by the Chambers & Partners team, on the basis of interviews and research carried out for the Chambers Europe 2017 legal guide. Chambers & Partners comments: “Widely recognised as a powerhouse across all aspects of corporate and commercial law in Luxembourg, Arendt & Medernach has achieved and consolidated its top tier rankings in a diverse range of practice areas. The firm also makes significant gains this year, with both its investment funds and its capital markets practices advancing to the top band after receiving strong praise from clients and advising on an impressive selection of deals.”   Luxembourg Law firm of the year at the IFLR European Awards 2017 National firm awards are given to the firm with the best track record in 2016 giving local law advice on the most innovative cross-border deals (covering all award practice areas) from the country in question. IFLR’s awards celebrate innovation, novelty and complexity – whether structural or regulatory. To select the winner, IFLR’s editorial staff spoke with many lawyers and other professionals across the region. Both private practice and in-house counsel were interviewed, and the decisions taken by the editorial team were based on extensive research. IFLR comments: “Arendt & Medernach had mandates on five transactions shortlisted for deal of the year. Highlights include mainly key financial transactions and acquisitions. The firm also impressed with other very innovative work, not least in relation to the legal groundwork relating to space resources, but also for key role on the first indirect listing of a Luxembourg company on a Chinese stock exchange.” Jean-Marc Ueberecken, Managing Partner of Arendt & Medernach, expressed his enthusiasm at receiving these awards: “This recognition is the result of teamwork and the capacity of our firm to combine many different areas of expertise in law. In addition, these awards complement our innovative approach and our constant will to bring the best solutions to clients”.

The question of the scope of the cost-sharing VAT exemption, also referred to in the Council Directive 2006/112/EC of 28 November 2006 as amended ("EU VAT Directive") as “Independent Groups of Persons” or “IGPs”, is currently being debated at the Court of Justice of the EU (“CJEU”) in several cases. Last Thursday marked the first milestone regarding this specific VAT exemption since the CJEU released its judgment in the case Commission v Luxembourg (C-274/15). This case law is important as it will open a new area in the field of cost-sharing arrangements and a new discussion on the concept of VAT grouping. ​With the decision confirming that Luxembourg has failed to fulfil its obligations, the Luxembourg IGP regime will have to comply with the judgement without delay.   Please click on this link to read the full tax update.