On August 2nd 2016, draft law 7031 introducing country-by-country reporting (the “Draft Law”) was submitted to the Luxembourg Parliament with the aim of transposing into Luxembourg law:
- EU Directive 2016/881 which has extended the scope of the automatic and mandatory exchange of information in tax matters to country-by-country reporting (“CbC Reporting”); and
- the recommendations of BEPS Action 13 relating to CbC Reporting. For further information on EU Directive 2016/881 please refer to our newsletter of July 2016.
CbC Reporting is applicable to multinational groups (“MNE”), i.e. groups that include two or more enterprises tax resident in different jurisdictions or carrying out a business through a permanent establishment in another jurisdiction, having a total consolidated group revenue exceeding EUR 750 million.
It is, in principle, the ultimate parent of the MNE that is obliged to submit the CbC report to the competent authority of the jurisdiction in which it is resident. The Draft Law provides that, in certain circumstances listed hereafter, the filing obligation is applicable to any entity part of the MNE and this is applicable both to EU and non-EU countries.
A Luxembourg tax resident group entity (which is not the ultimate parent of the MNE) will be required to file the CbC report in the following circumstances:
- the ultimate parent company is not subject to CbC reporting obligations in its State of residence; or
- the jurisdiction in which the ultimate parent entity is resident has signed a multilateral agreement to which Luxembourg is party but does not have a qualifying competent authority agreement in effect with Luxembourg at the time the reporting of the information is required; or
- there has been a systemic failure of the jurisdiction of tax residence of the ultimate parent company.
Information to be exchanged
The CbC report includes two parts:
- for each country in which the MNE has one or more subsidiaries/permanent establishment, the aggregate amount of (a) the revenue, (b) the profits/losses before taxes, (c) income tax paid, (d) income tax accrued, (e) stated capital, (f) accumulated earnings, (g) number of employees, and (h) tangible assets other than cash or cash equivalents;
- per country, the list of the subsidiaries, their business activities, tax residence and, if different from the tax residence, the jurisdiction under the laws of which they are organised.
Timing and penalties
The reporting entities should file their CbC Reporting within 12 months after the last day of the relevant accounting year and the tax authorities should exchange such report with the concerned jurisdictions within 15 months after the last day of the relevant accounting year. The first reporting will be with respect to the year 2016 and an extended period of 18 months will be available to the tax authorities to proceed with the exchange of the information.
"The infringement of any of the CbC report filing obligations will be sanctioned by a penalty that could amount to EUR 250k."