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On May 4, 2021, the Luxembourg tax administration informed Luxembourg taxpayers of the publication of the corporation tax forms and related appendices for the 2020 tax year.
With the entry into force of the anti-hybrid rules of the 2nd anti-tax avoidance directive (“ATAD2“) January 1, 2020 and the implementation of the mandatory declaration regime applicable to tax intermediaries (“DAC6“) on July 1, 2020, the reporting obligations of Luxembourg corporate taxpayers increased further this year. As 2020 corporate tax returns must be filed before June 30, 2021, taxpayers should take a closer look at the information requested by the tax authorities as soon as possible to ensure that they are able to file their tax returns on time.
Information on cross-border arrangements declared within the meaning of CAD6
Luxembourg law of 25 March 2020 transposing EU directive 2018/822 (“DAC6“) obliges intermediaries (i.e. tax advisers and other service providers) to report certain cross-border transactions to Luxembourg tax authorities. The main objective of DAC6 is to increase transparency by providing the tax authorities with early information about
potentially aggressive or abusive tax planning and to identify the promoters and users of these schemes. DAC6 works through a system of markers that can trigger reporting obligations and a primary benefit test that serves as a threshold requirement for many of these markers. Thus, DAC6 is a fairly complex framework which requires a thorough and complete analysis of all the facts and circumstances of transactions carried out by taxpayers.
Although the reporting responsibilities under DAC6 generally lie with the intermediary, they may be transferred to the relevant taxpayer in certain circumstances.
The declaration of cross-border arrangements on the basis of the DAC6 is subject to specific rules and reporting requirements and is done independently of the tax declarations filed by the taxpayer. However, corporate taxpayers are still required to indicate in their corporate income tax 2020 (“CIT“) declare (tax form 500) if they used one or more declarablecross-border agreements during the 2020 tax year. When this is the case, i.e. when a DAC6 declaration has been filed in relation to a transaction carried out by the taxpayer, Luxembourg taxpayer companies must provide the reference (Arrangement ID) of the cross-border agreement. -border arrangements that have been declared in the EU in their 2020 corporation tax returns. February 2021 and the 30-day reporting period applicable to reportable cross-border arrangements implemented between July 1, 2020 and December 31, 2020 began on January 1, 2021. As of January 1, 2021, reporting must be made within 30 days from the day following the availability of the reportable cross-border scheme for implementation, or the day after the reportable cross-border scheme is ready for implementation, or when the first stage of the implementation of the agreement cross-border reportable has been crossed, whichever comes first.
Information on hybrid discrepancies
On January 1, 2019, the generic provisions to combat hybrid devices included in the first anti-tax avoidance directive 2016/1164 of July 12, 2016 establishing rules against tax avoidance practices that directly affect the functioning of the internal market (“ATAD1“) were introduced in order to eliminate – in the EU context only – the double non-taxation created by the use of certain hybrid instruments or entities. Hybrid mismatches generally result from a different tax treatment of a entity, permanent establishment or financial instrument under the laws of two or more jurisdictions and may result in a deduction without inclusion results or a double deduction.
These rules have been replaced with effect from 1 January 2020 by the modified anti-hybrid rules of ATAD2 which also aim to neutralize the effects of hybrid devices but which have a wider scope since they apply to a extended number of hybrid arrangements with both the EU and third countries. The rules relating to hybrid schemes provided for in Article 168ter of the Luxembourg law on income tax (“LITTLE“) target a variety of different situations, including direct hybrid asymmetries between associated enterprises, structured agreements between third parties, hybrid imported mismatches and tax residency mismatches. The 2020 tax form includes a list of questions (which must be answer with “yes” or “no”) which aim to allow the tax administration to identify one or more of these situations of hybrid asymmetry.
Since the anti-hybrid rules have changed with effect from January 1, 2020, taxpayers whose financial (and tax) year differs from the calendar year are subject to two different sets of anti-hybrid rules during their year. tax 2020. These taxpayers will be required to provide information so that the tax administration is able to analyze the potential application of both the anti-hybrid rules that were in force until December 31, 2019 and the rules that entered into force on January 1, 2020.
In addition to the new sections introduced in connection with the DAC6 reporting and hybrid asymmetries, the corporate tax return form 500 contains a number of other changes, such as an update of the sections dedicated to the application. of the tax consolidation regime and the application of the participation exemption regime, a new section on the exemption of profits or capital gains from controlled foreign companies (“CFC“) and which have already been included in the taxable result of previous years, the headings relating to the new deductions introduced in the context of the Covid-19 pandemic, and to the deduction of carry-overs exceeding the borrowing costs as well as the determination of the capacity of unused deferred interest, to name a few. LITL introduced in 2019 and 2020.
With the release of the 2020 tax forms, the information to be provided to the Luxembourg tax administration regarding the new rules introduced in 2020 has become clearer. In the context of the COVID-19 crisis, the law of February 25, 2021 extended the deadlines for filing corporate tax returns, municipal business tax (MBT) and wealth tax (TN-O) from 31 March 2021 to June 30, 2021. However, given the late publication of the related corporate tax forms, this leaves very little time for taxpayers to prepare.
Therefore, to be able to properly prepare their tax returns, corporate taxpayers should ensure that their situation and structure have been carefully examined or seek advice from their tax advisers as soon as possible to determine if there are any situations. hybrid asymmetry arising in their overall structure, whether due to the financial instruments used or the entities involved. If this has not already been done as part of the implementation of their investment structures, taxpayer companies should also contact their tax advisers and any other intermediary involved in the implementation of their investment structures, to determine whether reportable devices have been identified and reported in any EU Member State by one of the intermediaries.
How can we help
Tax rules are constantly evolving and the anti-hybrid rules of ATAD2 are probably the most complex tax legislation ever introduced in Luxembourg. This is why it is very important that corporate taxpayers can rely on a solid technical analysis of all potential tax issues (related to ATAD2 but also other tax issues, such as the CFC rules introduced from the January 1, 2019) which may arise / have arisen in their investment structures when (or their service providers) prepare their tax returns. Here, communication between the tax advisor and the service provider preparing the tax returns will be essential. ATOZ Tax Advisers and ATOZ Services offer true integrated services and work hand in hand to provide top notch services and advice to our clients and we believe that our synergies will greatly contribute to your efficiency and be the key to your success.
Regarding the DAC6, we have developed an IT solution to identify the transactions likely to be declared within the framework of the DAC6, in order to help taxpayers and intermediaries to comply with their DAC6 declaration obligations in their allowing an individual assessment of whether a cross-border transaction or not the agreement must be declared and, where applicable, assigning the reporting obligation to a designated intermediary. Find out more here: www.dac6connect.com.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.