For purposes of compliance with the BEPS project, last year Luxembourg issued Circular LG - A no.64 under which the Luxembourg tax authorities introduced disclosure requirements for transactions between Luxembourg resident entities and related entities resident in a country included in the EU’s blacklist of tax havens. The requirements apply for the first time to the 2018 tax year and, as tax returns for that period will be in the course of preparation, it is worth reminding readers of the impact of the Circular. It seems that Luxembourg may have taken the lead on this particular initiative.
The Circular provides that Luxembourg resident entities should indicate in their Luxembourg tax returns whether they are involved in transactions with related entities resident in a country included in the EU’s blacklist of tax havens as at the end of the relevant tax year. For the tax year 2018, the list comprises only Samoa, Trinidad and Tobago, American Samoa, Guam and the US Virgin Islands. While this list is limited and may be regarded as somewhat exotic, in its most recent current form it contains additional countries (Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, Marshall Islands, Oman, United Arab Emirates, Vanuatu) that would, if they remain on the list at the end of this year, be relevant to the next tax year. "Related entities" would be those that participate directly or indirectly in the management, control or capital of the relevant Luxembourg entity or where two entities are under common control or management.
According to the Circular, Luxembourg entities that disclose such transactions will be subject to more stringent review and audit. The Circular anticipates that the Luxembourg tax authorities may request additional information, for example financial information relating to these transactions as well as the inter-company debt position between the Luxembourg entity and its blacklisted related entities.