EY Tax Club

1 EY Tax club Year-end Tax update John Hames / Sylvie Leick / Yannick Zeippen 2 December 2015. Agenda Tax rulings Transfer Pricing Anti-abuse rules Transparency IP Tax regime Net Wealth Tax Individuals Double taxation treaties VAT. Trends Page 2 2 December 2015 EY Tax club Tax rulings Page 3 2 December 2015 EY Tax club New tax ruling process - effective 2015. Formalization of the previous tax ruling practice into Luxembourg domestic law ( 29a Abgabenordnung and Grand-Ducal Regulation (GDR) dated 23 December 2014): Formal requirements ( , information on taxpayer, detailed description of envisaged transactions, detailed tax analysis, bona fide statement). New Tax Ruling Commission ( commission des d cisions anticip es ) still rulings are addressed to the head of the tax office. Timing of filing of tax rulings: GDR requires that transactions must not have produced their effects . Validity of 5 years (under certain conditions). New administrative service fees applicable for any request submitted as from 1 January 2015.

2 (range between EUR 3,000 10,000) no fees for pending rulings filed before 31 December 2014. No recourse possible against negative decision however a claim can be filed against the tax assessment. Publication of anonymized executive summaries / exchange of information. Increased focus on business purpose and transfer pricing. Page 4 2 December 2015 EY Tax club New tax ruling process In essence, no substantial change compared to the past except for the fact that the former administrative practice is formalized under a legal framework. Focus on providing a robust legal framework and improving the dialogue between the taxpayer and the tax administration. Tax rulings remain an interpretation of the Luxembourg tax law applicable to a specific fact pattern. Increased tax transparency in line with principles of the new Government's fiscal policy. Contribution to a competitive domestic and international tax environment. Stable framework with the aim to achieve enhanced planning security and conformity with OECD / BEPS standards.

3 Page 5 2 December 2015 EY Tax club Transfer Pricing Page 6 2 December 2015 EY Tax club Transfer pricing - effective 2015. Formalization of the framework for Luxembourg transfer pricing (TP) legislation and introduction of transfer pricing documentation requirements: Under prior legislation, power of the Luxembourg tax authorities to reassess the taxable result of a Luxembourg taxpayer in cases where an unjustified transfer of profits had been made due to a special economic relationship of that taxpayer with a non-resident taxpayer. New regulation outlines the arm's length principle in line with the OECD Model Convention and applicable (as from 1 January 2015) to transactions with resident and non-resident related party. TP documentation required for all transactions between related parties for the purpose of verification of transfer prices by the Luxembourg tax authorities. New Luxembourg ruling procedure applies also to Advance Pricing Agreements (APA). Page 7 2 December 2015 EY Tax club Anti-abuse rules Page 8 2 December 2015 EY Tax club Parent Subsidiary Directive (PSD) changes Draft law n 6847 aims at introducing anti-hybrid (avoidance of double non- taxation due to hybrid mismatches in two Members States) and general anti-abuse rule ( GAAR , benefit of PSD denied for structures which main purpose is to gain a tax advantage).

4 Application only within intra-EU context. Implementation deadline is 31 December 2015. Page 9 2 December 2015 EY Tax club Parent Subsidiary Directive (PSD) changes Anti-hybrid provision Tax exemption denied Based on national law, loan instrument qualifies LuxCo as equity Income derived: tax Loan granted from exempt dividend LuxCo to EUCo Based on national law, EUCo loan instrument qualifies as debt Expense on loan: tax deductible interest Page 10 2 December 2015 EY Tax club Parent Subsidiary Directive (PSD) changes GAAR. Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances.. An arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

5 Page 11 2 December 2015 EY Tax club US Branches Discussions between the Luxembourg tax authorities and the IRS regarding the tax treatment of US branches of Luxembourg companies resulting in double non-taxation. Protocol or exchange of letters to the US-Luxembourg tax treaty providing for specific requirements that need to be met in order to be able to claim a branch exemption likely to be concluded; possibly specific grand-fathering period for existing US branch structures. Going forward, the Luxembourg tax authorities will, in essence, no longer issue advance tax clearances confirming the Luxembourg tax treatment of US branches. Situations to be analyzed on a case-by-case basis (signed advance tax clearance obtained or pending, US branch implemented, etc.). Page 12 2 December 2015 EY Tax club Mandatorily redeemable preferred shares (MRPS). Tax treatment of MRPS under discussion due to hybrid treatment (debt qualification for tax purposes vs equity treatment for accounting and legal purposes).

6 According to latest discussion with Luxembourg tax authorities, debt qualification should be upheld provided this is also reflected in the statutory annual accounts (substance over form approach under Lux GAAP or IFRS). Applicable at the latest for accounts closing as from 1 January 2016. Page 13 2 December 2015 EY Tax club Financial instruments under critical review Qualification for tax purposes: analysis of all criteria will result in the determination of debt or equity. Critical review of the terms and conditions of various financial instruments (CPECs, IPPECs, etc.), typical equity features: Crossed conversion options (issuer and holder) no longer accepted Stapling (instrument connected with shares) to be avoided Maturity < 30 years Determination of interest (not profit participating). Page 14 2 December 2015 EY Tax club Transparency Page 15 2 December 2015 EY Tax club Transparency Package Exchange of rulings March 2015: EU Commission presented package of tax transparency measures (Transparency Package): Assessing possible new transparency requirements for multinationals, public disclosure of certain tax information by multinationals Reviewing the Code of Conduct on Business Taxation Quantifying the scale of tax evasion and avoidance Repealing the Savings Tax Directive Key element: Proposal to change Directive 2011/16/EU to provide for mandatory automatic exchange of information on tax rulings (Advance Tax Rulings & Advance Pricing Agreements).

7 Initial division among Members States political agreement finally reached at ECOFIN meeting of 6 October 2015. Page 16 2 December 2015 EY Tax club Transparency Package Exchange of rulings Key features of the political agreement: Requirement to exchange information automatically on advance cross-border tax rulings, as well as APAs ( push ). Member states receiving the information will be able to request further information where appropriate ( pull ). Storage of the exchanged information on a secure central directory accessible to all Member States and, to some extent, to the EU Commission Member States will have the option to exclude from information exchange advance tax rulings and pricing arrangements issued to companies with an annual net turnover of less than 40 million at the group level, if such advance cross-border rulings and APAs were issued, amended or renewed before 1 April 2016; exemption does however not apply to companies conducting mainly financial or investment activities.

8 Page 17 2 December 2015 EY Tax club Transparency Package Exchange of rulings Implementation: Application of new rules from 1 January 2017. Directive will be retroactive to 1 January 2012, but specific transition rules for rulings issued before 1 January 2017 will apply: Advance cross-border rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013. will be exchanged under the condition that they are still valid on 1 January 2014. Advance cross-border rulings and APAs issued, amended or renewed between 1 January 2014 and 31 December 2016. will be exchanged irrespectively of whether they are still valid or not. Page 18 2 December 2015 EY Tax club FATCA / Exchange of information Entry into force on 29 July 2015 of the FATCA agreement signed with the US, including the Memorandum of Understanding signed on 28 March 2014. and the exchange of notes. Deadline for 2015 reporting was 31 August 2015; deadline is 30 June for subsequent years. Circular letters (ECHA Nos.)

9 2 and 3) issued, providing for more detailed guidelines on the application of the agreement by Luxembourg financial institutions and on the format to be used by financial institutions for submitting the required information to the Luxembourg tax administration. Page 19 2 December 2015 EY Tax club FATCA / Exchange of information Draft law n 6858 on the automatic exchange of information in the field of taxation. Incorporate to the greatest extent possible of the provisions of the FATCA. law. The automatic exchange will cover among others: the account balance or value, including, in the case of a Cash Value Insurance Contract or Annuity Contract, the Cash Value or surrender value;. the total gross amount of interest, dividends, and other income generated with respect to the assets held in the account;. the total gross proceeds from the sale or redemption of Financial Assets paid or credited to the account. Page 20 2 December 2015 EY Tax club IP Tax regime Page 21 2 December 2015 EY Tax club IP tax regime Abolishment of existing regime as from 1 July 2016.

10 Transitional period starting on 1 July 2016 and expiring on 30 June 2021: regime will continue to apply until the aforementioned expiry date to any qualifying intellectual property (IP) that has been constituted or acquired before 1 July 2016, including improvements made to such IP provided that such improvements are terminated before 1 July 2016. Safeguard measure: expiry of the transitional period on 31 December 2016 if: IP has been acquired after 31 December 2015 from a related party;. IP has, at the time of its acquisition, not been already eligible for the Luxembourg IP Regime or for a foreign tax regime corresponding to the Luxembourg IP Regime. Spontaneous communication of information for new entrants after 6. February 2015. Page 22 2 December 2015 EY Tax club Net Wealth Tax Page 23 2 December 2015 EY Tax club New NWT reduction mechanism As from 1 January 2015 the determination of the unitary value as well as of the net wealth tax (NWT) on an annual basis. Amendment of the mechanism for claiming NWT reduction: CIT of the preceding year (instead of the CIT of the same year as it was previously the case) to determine the limit of the NWT reduction, CIT of the year N.