Corporate tax return 2020: extra tax guidelines, extra reporting, time to behave! – VAT

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On May 4, 2021, the Luxembourg tax authorities informed Luxembourg taxpayers about the release of the corporate tax forms and the associated annexes for the 2020 tax year.

With the entry into force of the anti-hybrid rules of the 2nd Anti-Tax Avoidance Directive (“ATAD2“) on January 1, 2020 and introduction of the disclosure obligation applicable to tax intermediaries (“DAC6“) On July 1st, 2020, the reporting requirements of Luxembourg corporate taxpayers increased again this year. Since the corporate income tax return for 2020 has to be submitted by June 30th, 2021, taxpayers should take a closer look at the information requested by the tax authorities as soon as possible to ensure they can file their tax returns on time.

Information on reported cross-border agreements within the meaning of DAC6

The Luxembourg law of March 25, 2020 implementing EU Directive 2018/822 (“DAC6“) requires intermediaries (ie tax advisors and other service providers) to report certain cross-border agreements to the Luxembourg tax authorities. The main purpose of DAC6 is to increase transparency by informing tax authorities at an early stage of potentially aggressive or abusive tax planning. DAC6 cooperates a system of labels that can trigger reporting requirements and a key benefit test that serves as a threshold for many of these labels, so DAC6 is a rather complex framework that requires a thorough and comprehensive analysis of all the facts and circumstances of taxpayers’ transactions.

While the reporting obligations under DAC6 generally lie with the intermediary, under certain circumstances they can be transferred to the respective taxpayer.

The reporting of cross-border agreements on the basis of DAC6 is subject to specific rules and notification requirements and is independent of the tax returns submitted by the taxpayer. However, corporation taxpayers must still state in their corporation tax 2020 (“CIT“) Declaration (Tax Form 500) as to whether they entered into one or more reportable cross-border agreements in the 2020 tax year. If so, i.e. if the DAC6 reporting was submitted in connection with a transaction carried out by the taxpayer in Luxembourg, corporation taxpayers must provide the reference (Arrangement ID) of the cross-border agreements reported in the EU in their corporate tax returns for 2020. As a reminder, reporting on agreements that were implemented between June 25, 2018 and June 30, 2020. February 2021 and the 30-day reporting period for reportable cross-border agreements between July 1, 2020 and December 31, 2020 began on January 1, 2021. As of January 1, 2021, reporting must be done within 30 days of either starting the day after the provision of the reportable gren z cross-border agreement to implement or the day after the reportable cross-border agreement is implemented, or w when the first step in implementing the reportable cross-border agreement has been made, whichever comes first.

Information on hybrid mismatches

On January 1, 2019, the general anti-hybrid mismatch provisions of the first anti-tax avoidance directive 2016/1164 of July 12, 2016 laid down provisions against tax avoidance practices that have a direct impact on the functioning of the internal market (“ATAD1“) were introduced to eliminate – only in an EU context – the double non-taxation that arises from the use of certain hybrid instruments or companies. Hybrid mismatches usually result from different tax treatment of a company, a permanent establishment or a financial instrument under the laws of two or more jurisdictions and may result in a non-inclusion or double deduction.

These rules have been replaced from January 1, 2020 by the amended anti-hybrid rules of ATAD2, which also aim to neutralize the effects of hybrid mismatches, but which have a broader scope as they apply to an expanded number of hybrids – Mismatching situations with apply both in the EU and in third countries. The hybrid mismatch rules under Article 168ter of the Luxembourg Income Tax Act (“LITL“) target a variety of different situations, including direct hybrid mismatches between affiliates, structured agreements between third parties, imported hybrid mismatches, and tax residence mismatches. The 2020 Tax Form contains a list of questions (answer” yes “or” no “) ) designed to enable tax authorities to identify one or more of these hybrid mismatch situations.

As the anti-hybrid rules have changed with effect from January 1, 2020, taxpayers with a financial (and tax) year different from the calendar year are subject to two different anti-hybrid rules during their 2020 tax year. These taxpayers will need to provide information so that tax authorities can analyze the potential application of both the anti-hybrid rules in force through December 31, 2019 and those that came into force on January 1, 2020.

Other changes

In addition to the new sections introduced in relation to DAC6 reporting and hybrid mismatches, the Form 500 corporate income tax return includes a number of other changes, such as: B. an update of the sections devoted to the application of the tax consolidation regime and tax consolidation system, application of the participation exemption system, a new section on the exemption of profits or capital gains from controlled foreign companies (“CFC“) and that were already included in the taxable result of previous financial years, sections that relate to the new deductions introduced in connection with the Covid-19 pandemic and the deduction of lectures that exceed the borrowing costs, as well as With these new sections, the form for the corporate income tax return has become more technical, but also more relevant if you take into account the changes to the LITL introduced in 2019 and 2020.

Next Steps

With the publication of the 2020 tax forms, the information to be provided to the Luxembourg tax authorities in relation to the new rules introduced in 2020 has become clearer. In connection with the COVID-19 crisis, the law of February 25, 2021 extended the deadlines for filing tax returns for CIT, municipal business tax (MBT) and net wealth tax (NWT) from March 31, 2021 to June 30, 2021. However The late publication of the appropriate corporate income tax forms leaves very little time for taxpayers to get ready.

In order to properly prepare their tax returns, corporate taxpayers should ensure that their situation and structure have been carefully reviewed, or seek advice from their tax advisors as soon as possible to determine if hybrid incongruity situations arise, whether due to their global structure the financial instruments used or the companies involved. If this has not already been done as part of the implementation of their investment structures, corporation taxpayers should also contact their tax advisors and other intermediaries involved in the implementation of their investment structures to determine whether reportable agreements have been made and in an EU Member State by one of the intermediaries reported.

How we can help

Tax rules are constantly evolving and ATAD2’s anti-hybrid rules are probably the most complex tax law ever introduced in Luxembourg. For this reason, it is very important that corporate taxpayers can rely on an in-depth technical analysis of all potential tax problems (ATAD2-related, but also other tax problems such as the CFC rules introduced from January 1, 2019) arose in their investment structures when they (or their service providers) prepare their tax returns. Communication between the tax advisor and the service provider who prepares the tax returns is of crucial importance. ATOZ Tax Advisers and ATOZ Services offer true integrated services and work hand in hand to provide our customers with first class services and advice. We believe that our synergies contribute significantly to your efficiency and will be the key to your success.

With regard to DAC6, we have developed an IT solution that can identify transactions that are likely to be reported under DAC6 so that taxpayers and intermediaries can meet their DAC6 reporting obligations by individually assessing whether they are cross-border Transactions trades or not The agreement is reportable and, if applicable, the division of the reporting obligation to a specific intermediary. Further information can be found here: www.dac6connect.com.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.