Over
the last few decades, Luxembourg has emerged to the location of choice
for alternative investments (private equity, private debt, real estate,
infrastructure, etc.) in and throughout Europe. The attractiveness of
Luxembourg is linked to a host of factors which have made it an
essential part of the global financial architecture.
These
factors include a flexible and diverse legal, regulatory and tax
framework, investor and lender familiarity with the jurisdiction, the
availability of a qualified, multilingual workforce, the existence of a
deep pool of experienced advisers and service providers, a large tax
treaty network, an investor-friendly business and legal environment, and
political stability, to name a few.
However,
while the Grand-Duchy continues to be attractive for international
investors and asset managers, the climate in the international tax arena
has changed significantly over the last few years. The OECD Base
Erosion and Project Shifting (“BEPS”) Project and related initiatives at
EU level resulted in substantial tax law changes across Europe and the
rest of the world.
In
the European Union, the transposition of two Anti-Tax Avoidance
Directives (“ATAD” and “ATAD 2”) resulted in the implementation of a
number of anti-abuse provisions such as the interest limitation rules,
the hybrid mismatch rules and a general anti-abuse rule.
While
substance has always been an important topic for Luxembourg companies
which are frequently involved in cross-border investment and business
activities, the focus on economic substance only increased throughout
and following the OECD BEPS Project. Therefore, it is crucial to equip
Luxembourg companies with an appropriate level of substance.
Another
important development concerns transfer pricing which has become the
hot topic in Luxembourg. In this regard, the Luxembourg tax authorities
follow the OECD Transfer Pricing Guidelines which have undergone a
substantive revision as a result of the BEPS Project. In anticipation of
these changes, the transfer pricing regime applicable to companies
performing financing activities has already been changed as from 2017.
The
OECD BEPS Project also had a significant impact on the global network
of bilateral tax treaties. Modifications to bilateral tax treaties have
been implemented through the Multilateral Instrument (“MLI”) which
resulted in the adoption of anti-abuse provisions such as the principal
purposes test (“PPT”).
Last
but not least, the Luxembourg legislator implemented the mandatory
disclosure regime (“MDR”), transposing DAC 6 into domestic law. Under
the MDR, tax intermediaries are required to report information on
certain cross-border arrangements to the Luxembourg tax authorities.
This
book is a practical guide which focuses on the tax treatment of
Luxembourg companies involved in alternative investments. As such, this
book will equally benefit tax advisers, practitioners and other
professionals who have an interest in taxation.
