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  • To announce the application of §1 or §3 in case of sale of sub license right? LAL
  • LAL There are rumors that acquisitions from foreign countries should be accepted since the rationale of the article 50bis is avoiding double use of 80% between two Luxcos.
  • Transcript

    • 1. Luxembourg tax opportunities for ICT
      • François Petit, Tax Manager, Commerce & Industry, KPMG
    • 2. KPMG in Luxembourg Organization of KPMG Luxembourg (Total staff: 900, Tax: 200) 6 Partners & Directors 22 Partners & Directors 14 Partners & Directors BANKING FUNDS INSURANCE INDUSTRIAL & COMMERCIALS CORPORATE HEADQUARTERS PUBLIC SECTOR KPMG Audit KPMG Advisory KPMG Tax REAL ESTATE
    • 3. And the Winner is …
      • KPMG Luxembourg voted 2010 Leading Tax planning & Tax transactional Firm in Luxembourg – International Tax Review, 2010
      • « KPMG in Luxembourg delivers a full tax service to their many local and international clients. Some of their specialists are held in the highest regard by their peers and other market observers. »
    • 4. 1/Generalities
    • 5. Reasons for frequent use of Luxembourg in international structuring/ planning
        • Pragmatic approach of Luxembourg tax authorities in enacting domestic tax laws in favour of cross border investment streams (holding, financing, real estate, IP, trading, etc.) and high value added functions (IP management, distribution, entrepreneurial functions, etc).
        • Very tax efficient vehicles (e.g. fully taxable SOPARFI, securitization vehicles, SICAR, SIF, SPF, etc.): if properly structured, no or minimum taxation in Luxembourg
        • Good treaty network (57 treaties in force and currently 17 treaties signed/ in negotiation)
        • Tax agreement system – available to secure tax treatment (very prompt and flexible tax authorities)
        • As a general rule, no withholding tax on royalties, interest payments and liquidation proceeds
        • Luxembourg participation exemption
        • Easy partial / full exit or refinancing strategy - can be structured to be free of withholding tax
    • 6. Luxembourg: Not a “Tax Heaven”
        • Effective corporate income tax rate (corporate income tax and municipal business tax): 28.80%.
        • Net wealth tax: 0.5% annually on the net assets of the company (creditable under certain conditions) – exemptions available (see further)
        • VAT : 3% to 15% rate
        • No capital duty (abolished effective 1 January 2009).
        • Tax analysis letter system available to secure tax treatment
        • Withholding taxes
        • 15% WHT on dividend payments (reduced by double tax treaty 0%, or EU Parent-Subsidiary Directive 0%)
        • No withholding tax on royalties (apart from certain artistic activity)
        • No withholding tax on interest payments (withholding tax or exchange of information in case Savings Directive applies)
        • As from 1 January 2011, specific tax provisions to highly skilled workers relocated in Luxembourg after 31 December 2010 -> exemption of part of highly skilled workers’ remuneration in relation with their assignment in Luxembourg.
    • 7. Luxembourg Tax Developments
        • As Luxembourg has concluded a double tax treaty with Israel and provided certain conditions are fulfilled, dividends paid by a Luxembourg company to an Israeli company should not be subject to Luxembourg withholding tax.
        • IP Tax regime
        • 80% deduction of IP related income
        • Qualifying IP assets are now exempted from the Net Wealth Tax
    • 8. DTT list of countries In Force Not yet in force Middle East and North Africa UAE, Morocco, Tunisia, Turkey, Israel, Bahrain, Kuwait, Qatar Lebanon, Syria. Asia Azerbaijan, China, Hong Kong, Georgia, South Korea, Indonesia, India, Japan, Malaysia, Mongolia, Uzbekistan, Singapore, Thailand, Vietnam, Kazakhstan, Georgia Pakistan, Kyrgyzstan. East Europe & non EU Member states Russia, San Marino, Norway, Moldova, Switzerland, Iceland, Armenia, Ukraine, Serbia Montenegro, Albania, Macedonia. EU Member states Austria, Germany, Belgium, Bulgaria, Denmark, Spain, France, Greece, Hungary, Ireland, Italy, Netherlands, Poland, Portugal, Czech Republic, Slovak Republic, Romania, UK, Sweden, Finland, Malta, Slovenia, Estonia, Latvia, Lithuania Cyprus Latin America/caribbean Brazil, Trinidad and Tobago, Argentina, Barbados Africa South Africa, Mauritius North America Canada, Mexico, USA
    • 9. The tax analysis letter system: presentation
        • No general tax analysis letter published.
        • Private tax analysis letters only, specific to each taxpayer.
        • Tax analysis letters are not published as it would be contrary to the private character of such letter and as it is always issued considering the specific situation of a taxpayer.
        • Not legally binding but followed in practice where no change of the facts presented and no subsequent change in the law.
        • The tax analysis letters accepted may be relied upon to the extent that:
        • Full disclosure of the facts in the written request
        • Purpose to confirm a tax treatment and not to confer an undue advantage
        • Issued by a competent civil servant
        • Contains no reservations or limitations
        • A tax analysis letter may contain limitations such as a time period, reference to particular facts such as the size of the turnover) and may be specific to the facts and circumstances of the taxpayer.
        • Period of validity: open ended if no stated time period (in such case, an extension can be requested)
    • 10. The tax analysis letter system – Main topics
        • Specific cases of application of the Luxembourg participation exemption such as comparable taxation status for the subsidiary, the character of earn-out payment, etc.
        • Functional currency for tax purposes.
        • Exit routes (using instruments to avoid withholding tax on profit participation).
        • Financing margin (transfer pricing study requested, except for small financing volume), finance companies, finance branches.
        • Margin on royalties (documentation requested)
        • Hybrid financing instruments and hybrid entities
        • There is actually no limitation as regards the variety of topics.
    • 11. The Grand Duchy of Luxembourg At the Heart of Europe 2/ Luxembourg VAT
    • 12. Luxembourg VAT treatment of television, broadcasting and electronic services
        • In a B2B transaction : services should be located where the recipient is established.
        • In a B2C transaction: services should be located where the supplier is established.
    • 13. VAT on e-services
        • Most services provided for a fee through the internet.
        • The physical delivery of goods, where the order and processing is done eletronically, does not qualify as electronically supplied services.
        • VAT advantage for B2C : The lowest VAT rate in the EU (15%).
    • 14. VAT on e-services
        • Conditions to benefit of 15% VAT rate:
        • Services delivered on the internet,
        • Involving minimal human intervention,
        • Internet cannot be used for communication between suppliers & customers,
        • Internet is only used for the supply itself,
        • Internet is used as a support for the commercial activity.
    • 15. VAT on e-services
        • Examples:
        • Supply of digitized products generally,
        • Supply of music,
        • Supply of online or offline games,
        • Supply of games of chance and gambling games,
        • Supply of images, text and/or information,
        • Making available of databases,
        • On-line auction services,
        • Supply of distance teaching.
    • 16. VAT on TV/Radio broadcasting
        • The broadcasting of television or radio programs ,
        • Many potential viewers or listeners
        • VAT advantage for B2C : Super-reduced VAT rate (3%)
        • Adults content still to 15%.
    • 17. VAT on TV/Radio broadcasting
        • Conditions to benefit of 3% VAT rate:
        • Whatever the mode of transmission used,
        • Only to « public » broadcasting,
        • Regardless of whether the provider has the responsibility of the content or not,
        • Applicable to ancillarry operations ,
        • Applicable to all content except if exclusively aimed at adults.
    • 18.
        • VAT on Telecommunications services
      • Services relating to
      • Transmission, Emission, Reception
      • Of
      • Signals, Words, Images, Sounds, Information
      • By
      • Wire , Radio, Optical, Other electromagnetic systems
        • VAT advantage for B2C : The lowest VAT rate in the EU (15%).
      • Not subject to VAT if enjoyed outside of the EU.
    • 19. VAT on Distance sales
        • Goods ordered online
        • « Distance sales » rules allow :
        • A business to charge VAT rate, to a private consumer, at the rate applicable in the country where the business is established, if its sales to other EU countries do not exceed EUR 100,000. Otherwise, it will be required to charge VAT rate, at the rate applicable in the country where the goods are delivered.
        • E.g. Amazon
    • 20. Condition to benefit from Luxembourg VAT rates
        • Substance condition: the entity to be given the possibility to carry out an econimic activity in an autonomous and permanent way.
    • 21. 9. Luxembourg IP Law: Principles
        • 80% exemption on net positive royalty AND on net capital gain from certain IP
        • 80% deemed income deduction for self-developed patents
        • Effective corporate tax rate of 5.76% on qualifying net IP income
        • Recapture system & anti-abuse provisions
        • Simple valuation methods for small and medium size businesses
        • The 6 paragraphs of article 50bis ITC
        • 1§. The income received as payment for the use or the granting of the right to use (usage ou la concession de l’usage d’un droit) any software copyright, patent, trademark or service mark, domain names, design or model, is exempt up to 80 % of its net positive amount.
        • The net income is the gross income less expenses having a direct economic relationship with the income and includes annual amortizations as well as write-downs if applicable.
      Luxco Opco royalty licence CustomerCo sale Sale price
    • 22. 9. Luxembourg IP Law: Principles
        • §2. Where the taxpayer created a patent himself and it is used as part of his business activity, he is entitled to a deduction amounting to 80% of the net positive income that he would have realized if he had authorized the use of such right to a third-party.
        • Net revenue = fictive gross revenue less directly related expenses including annual amortizations and any write-downs.
        • Deduction is allowed as of the date of the filing of the patent application.
        • If patent denied, recapture of previously deducted in the operating year of the notice of the denial.
      Luxco IP CustomerCo sale Sale price
    • 23. 9. Luxembourg IP Law: Principles
        • 3§. The capital-gain derived from the transfer (cession) of the right of software copyrights, patent, trade or service mark, or design or model is exempt up to 80%.
        • But recapture rule:
        • The capital gain is taxable up to the algebraic sum of 80% of the net losses (revenus nets négatifs) derived from the IP rights in both current and prior accounting periods to the extent net losses have not been compensated by article 50bis 4§2 (i.e. capitalized on the balance sheet, etc.)
        • No 80% exemption on assets acquired under articles 53 or 54 ITL.
      Sale of IP Re investment in IP Sale
    • 24. 9. New Luxembourg IP Law: Principles
        • 4§. Conditions of the law
        • 4§1. the right must have been created or acquired after 31 December 2007 and,
        • 4§2. the expenses, amortizations, and write-downs related to the right must be recorded on the taxpayer’s balance sheet and shall be included in the profits / loss allocation as from the first fiscal year for which the benefit of this tax regime is applied provided that for a given year, these expenses exceeded the income in relation with the same intellectual property right .
    • 25. 9. Luxembourg IP Law: Principles
        • 5§. Abuse of law provision
        • IP cannot be acquired from a direct related company.
        • If either seller / buyer companies are direct owners of each by at least 10%;
        • If both seller / buyer companies are directly owned 10% or more by same common parent company
      Seller / Acquirer Seller / Acquirer 10% NO Parent Acquirer 10% NO Seller 10%
    • 26. 9. Luxembourg IP Law: Which transfers are acceptable or not under the new law? Acquirer 10% Transferor Acquirer 100% YES 100% InterCo YES Individual Contribution of a branch of activity Seller / Acquirer Seller / Acquirer 100% YES? 10% Seller / Acquirer Seller / Acquirer 100% YES 10% InterCo
    • 27. 9. Luxembourg IP Law: Principles
        • 6§. Valuation method in case of disposal of IP
        • Large companies: generally accepted methods (Market Approach, Income Approach, Cost Approach, etc);
        • Other companies: possibility to determine the market value at 110% of expenses deducted from the taxable basis of the year of disposal and the preceding years. Grand Ducal Decree of 16 March 2005.
    • 28. 9. Luxembourg IP Law: Example of an IP acquisition
        • Background
        • IsraelCo incorporates LuxCo 1
        • LuxCo 1 incorporates LuxCo 2
        • IsraelCo transfers IP to LuxCo 2
        • LuxCo 2 grants a license to EUCo
        • EUCo pays royalties to LuxCo 2
        • LuxCo 2 pays dividends to LuxCo 1
        • LuxCo 1 pays dividends to IsraelCo
      Israel Co LuxCo 2 LuxCo 1 EUCO Royalties License IP Dividends Dividends
    • 29. 9. Luxembourg IP Law: Example of an IP acquisition
        • Luxembourg tax treatment
        • 80% of Net IP income received by LuxCo 2 is exempt from corporate income tax and municipal business tax
        • Qualifying IP exempt from net wealth tax
        • Only 20% of the Net IP income is subject to corporate income tax at the rate of 28,80%, so 5,76% ETR
        • Dividends paid by LuxCo 2 to LuxCo 1 should not be subject to withholding tax and said dividends should be tax exempt at the level LuxCo 1
        • Dividends paid by LuxCo 1 to IsraelCo should not be subject to withholding tax (under certain conditions)
        • Foreign considerations
        • Applicable withholding tax on royalties paid by EUCo to LuxCo2
        • Israeli taxation further to disposal of IP to a Luxembourg entity
        • Israeli taxation of dividends by IsraelCo
      Israel Co LuxCo 2 LuxCo 1 EUCO Royalties IP Dividends Dividends License
    • 30. 3/ Luxembourg Special Investment Funds (SIF)
    • 31. LUXEMBOURG ABROAD Property Company Holding Company ISRAEL Investors FCP-SIF Management Company
      • The investors are well informed investors, institutional investors or professional investors.
      • Taxation is to be analyzed on a case-by-case basis.
      • The FCP-SIF is in the form of a contractual fund; the management company of the FCP-SIF is in the form of a public/private limited liability company.
      • The FCP-SIF is not liable to corporate income tax, municipal business tax, net wealth tax and contribution to employment fund; the management company of the FCP-SIF is not liable to corporate income tax, municipal business tax, net wealth tax and contribution to employment fund if it manages only the FCP-SIF.
      • The FCP-SIF is liable to subscription tax of 1 basis point on the net asset value.
      • The holding company is typically in the form of a public/private limited liability company.
      • The holding company is liable to corporate income tax, municipal business tax, net wealth tax and contribution to employment fund.
      • The property company is typically in the form of the equivalent of a public/private limited liability company.
      Luxembourg Special Investment Funds (SIF) FCP - SIF
    • 32. Incentives
        • R&D incentives
          • Since Luxembourg wishes to attract companies developing technologies, the Luxembourg government developed a few financial aid processes for various type of scheme. The aim is to help companies to develop their business in Luxembourg. Financial aid can be granted according to certain conditions. In general, Medium-sized Enterprises (SMEs) and Large-sized Enterprises established in Luxembourg can benefit from these advantages.
        • Equipment loan provided by SNCI (Société Nationale de Crédit et d’Investissement).
    • 33. Contact
      • François Petit
      • Tax Manager
      • KPMG Tax Luxembourg
      • T: +352 22 5151 5585
      • François.petit@kpmg.lu
      • www.kpmg.lu