The so-called tax rulings and advance pricing agreements will be formalised by the introduction of appropriate provisions in the Luxembourg tax laws. By this means, Luxembourg will be able to offer as from 1 January 2015 a unified system providing taxpayers with legal certainty and a consistent and egalitarian treatment. Further, Luxembourg tax authorities will henceforth be authorised to levy a fee – from EUR 3,000 to EUR 10,000 – for the granting of an advance agreement for the benefit of corporate taxpayers only. The fee will be determined depending on the complexity of the request and the related work load. A new paragraph 29a will be added in theAbgabenordung ("AO") implementing the advance agreement procedure, which will henceforth have a written legal basis. The procedure will be laid out by a grand-ducal regulation (still to be published). However, the practice itself should predominantly remain unchanged.
There will be a reinforcement of the transfer pricing standards by means of an amendment of article 56 of Luxembourg income tax law ("ITL"), which requires henceforth expressly that intra-group transactions have to comply with the arm's length principle, or may be taxed in such a manner. Paragraph 171 of the AO will further have a new subparagraph (3) which will clarify that the obligation of information and documentation concerning a tax return also applies to transfer pricing rules. As a consequence, there will be a reversal of the burden of proof, meaning that it is up to the taxpayer to prove that there hasn't been any unjustified reduction of profit.
Increase of the Value Added Tax
Most of the Luxembourg value added tax ("VAT") rates will increase by 2%, meaning that: • the standard rate will be increased from 15% to 17%; • the intermediate rate will be increased from 12% to 14%; and • the reduced rate will be increased from 6% to 8%. However, the VAT rate of 3% (the so-called "super reduced VAT rate") will remain unchanged, except for real estate investments (with the exception of renovation works) and alcoholic beverages in the catering industry, where the standard VAT rate of 17% will be henceforth applicable. Further, the 3% rate is now available for clothes, hairdressing, scarves, gloves and shoes for children under the age of 14 years. Notwithstanding the above changes, Luxembourg still continues to have the lowest standard VAT rate within the European Union and is part of the member States with the lowest intermediate and reduced VAT rates. Moreover, the rules on e-commerce as well as telecommunication and broadcasting services generally will undergo some alterations. As from the 1 January 2015, the applicable VAT will be levied in the country of residence or domicile of the client and no longer in the jurisdiction of the supplier. Finally, certain new measures have also been introduced into the Luxembourg VAT law, and in particular:
clarification of "telecommunication services" in view of inter alia the changes regarding e-commerce and alike;
VAT taxpayers may benefit, under certain conditions, from interest on arrears imposed on the Luxembourg tax authorities in a situation of late/non reimbursement of a duly submitted and/or recognised VAT refund claim; and
obligation for taxable persons to be able to provide, on demand by the Luxembourg VAT authorities, besides accounting information and documents, data from their cash registers or stock record.
Minimum Corporate Income Tax
Companies, which have a minimum of 90% of fixed financial assets on their balance sheet but whose accumulated fixed financial assets do however not exceed EUR 350,000, may benefit henceforth from a minimum corporate income tax of EUR 500 instead of EUR 3,000. Thus, as from 1 January 2015, many small or dormant entities will benefit from such minimum corporate income tax of EUR 500.
Temporary Budget Balancing Tax
Henceforth, individual resident and non-resident taxpayers will be subject to a new, non-limited and non-deductible, 0.5% temporary budget balancing tax. This tax will be applied, with some minor exemptions, on all (e.g., professional, wealth, replacement, etc) income where Luxembourg has the taxation right, and will be calculated and levied under similar conditions as the 2011 and 2012 crisis contribution.
Exempt income (regardless whether such income is or isn't subject to the progressiveness system) under a double tax treaty or another by lateral or international convention will not fall within the scope of such new 0.5% temporary budget balancing tax.
Withholding Tax Refund
The possibility under article 154 ITL for Luxembourg resident taxpayers being in a tax-loss position to get a refund of tax duly withheld on capital is no longer available. Indeed, to comply with European law and its non-discrimination principle, such refund will henceforth not be offered anymore. Nevertheless, the important exception included in article 149, subparagraph 4a ITL is maintained, i.e. the refund will remain possible for Luxembourg dividends paid before the 12-month holding requirement laid down by the Luxembourg participation exemption regime.
Lump Sum Tax Regime
The obsolete article 9 ITL, which permitted the Luxembourg Finance Minister together with the Luxembourg Government to set a fixed tax rate, up to 10 years, for individuals when moving to Luxembourg, has been abolished.