Luxembourg, as many other countries all over the world, is facing substantial recent evolutions in the tax field as, amongst other, the implantation of the Global Standard for the Automatic Exchange of Information, the Base Erosion and Profit Shifting (BEPS) measures and other international guidelines tackling tax practices considered as detrimental ones. Luxembourg is apprehending all these concomitant fast tax evolutions in a context where the so called Luxleaks were released.
Luxembourg scapegoated is currently reacting by showing off its long standing tax reputation, and beforehand the “Luxleaks” already introduced, through the 2015 Budget Bill of Law, renewed and reliable practices. Luxemboug thus took the opportunity of the recent tax evolvements to (i) conform these fresh ruling practices and ascertain the legality about the advance tax confirmation, (ii) point out that other “ruling practices” exist in other EU jurisdictions for years, (iii) and make of the advance tax confirmation practice (which is considered as a good and modern tax practice in an international tax environment) a quality standard for foreign investors by introducing legal control on their practice and getting advance decisions granted more transparency by including them as part of tax exchange of information items.
1. The opportunity to conform ruling practices and ascertain the legality about the advance tax confirmations
Although the tax rulings practice is described as a suspicious one by the press, it is essential to keep in mind that there is nothing illegal in the way that the tax authorities addressed to an individual company comfort letters on a specific tax matter. In this context, the Luxembourg government took the opportunity to express a clear supportive position on this point. The Luxembourg Prime Minister, Xavier BETTEL, declared that the advance tax agreement’s practice conforms to international rules, adding that it was not a specificity of Luxembourg1. He also strongly reaffirmed that taxation remains subject to the decisions of the Member States reacting to the tax harmonization project in the European Union2.
In parallel to this, on November 10th;, Pierre GRAMEGNA, Minister of Finance, confirmed during a press conference at the Ecofin Council in Brussels, “that rulings have been considered by the European Commission as a procedure that is in conformity with EU-laws” and that this practice is also in conformity with Luxembourg legislation, OECD guidelines and other international conventions3.
The Commission has, as a matter of fact, admitted that “tax rulings are not per se problematic”4.
In addition, the Luxembourgish Direct Taxation Authority has coped effectively with all the critics by drafting a proposal of a Grand-Ducal Decree where the procedure applicable to the advance tax decisions is detailed. This Regulation is supposed to enter into force as from the 1st; January 2015. Luxembourg, hence, reaffirms its willingness to keep the tax ruling practice and to bring more transparency in such matter in order to confirm that everything is legal and regulated by a strong legal framework5.
2. The opportunity to point out that there exists “ruling practices” in other EU jurisdiction for years
European Commissioner for Competition M. VESTAGER stated that “tax rulings as such are common practice in Member States”. And it is not to say that other EU countries have been more transparent than Luxembourg as far as the advance tax agreement practice is concerned.
Indeed, Luxembourg is not the only country permitting a taxpayer to get an advance tax confirmation on a specific structure and the Commission has opened in-depth investigations with regards to potential state aid granted to Starbucks in the Netherlands, Apple in Ireland and other taxpayers located in Malta, Belgium, Cyprus and Gibraltar.
3. The opportunity to make of advance tax practice a quality standard for foreign investors
By formally introducing the tax ruling practice into the Law and issuing implementing rules in such a speed up manner, Luxembourg Government clearly demonstrates its willingness to quickly move forward on a stepped up tax playing field, making of it a quality standard for Luxembourg based investment structures.
To conclude, despite the allegations related by several press reports, the advance tax agreement practice in Luxembourg is totally legal and is not only specific to the Grand Duchy of Luxembourg as it could sometimes appear when reading some newspapers or hearing some members of foreign political classes. It is a practice which is under way of being modernised so as to fit with the new tax standards that international organisations and bodies intend to promote and set up at a global level. Luxembourg didn’t miss the boat so far and one could expect that Luxembourg Government will stick to the next tax evolutions to come so as to maintain Luxembourg tax place as a trustfully one.
2 Please see notably the press article “«La fiscalité c’est du ressort des Etats », dit le Luxembourgeois Bettel“, published in the Belgium newspaper Les Echos on 19 November 2014
4 Please see European Commission Press Release dating as of the 24 March 2014 (reference IP/14/309)