Luxembourg is the first country to officially introduce reporting requirements for Luxembourg companies who transact with jurisdictions designated by the European Union as ‘non-cooperative’ for tax purposes.
The measures, which will have immediate effect, are set out in Circular L.G. – A n° 64 issued on 7 May 2018 and will apply from the 2018 tax year.
Luxembourg resident companies must state in their tax return if they have entered into transactions with ‘related enterprises’ in jurisdictions included on the EU blacklist, starting from the 2018 tax year.
The term ‘related enterprise’ refers to an enterprise that participates directly or indirectly in the management, control or capital of another enterprise; or where the same individuals participate directly or indirectly in the management, control or capital of two enterprises.
In addition to this basic reporting requirement, companies are required to prepare a file containing details of the transactions in question, such as income and expenses as well as a statement of receivables and liabilities outstanding with the related party. The file should be kept at the registered office of the company and at the request of the tax authorities be made available to them as part of a review of the tax return or an on-site inspection.
In addition to the specific reporting requirements, the Circular states that the tax affairs of companies engaged in transactions with these countries will be subject to enhanced levels of scrutiny.
The new disclosure requirement will be based on the EU blacklist as it stood at the end of the relevant financial year. For 2018, this means only American Samoa, Guam, Samoa, Trinidad and Tobago and the US Virgin Islands.
Since that date, ten more jurisdictions had been added to the blacklist, although three of those (Aruba, Barbados and Bermuda) were recently removed, in May 2019.
The EU has now announced that the list will be updated later in 2019, but from 2020, updates will be done no more than twice per year. This will allow sufficient time for EU Member States to amend their domestic legislation if necessary. Sanctions against the remaining blacklisted jurisdictions are likely to be announced at this point.
The 12 jurisdictions still on the blacklist as at May 2019 are American Samoa, Belize, Dominica, Fiji, Guam, the Marshall Islands, Oman, Samoa, Trinidad and Tobago, United Arab Emirates, the US Virgin Islands and Vanuatu.
We would recommend reviewing any structures involving Luxembourg holding companies to determine what action if any needs to be taken. If you or your clients have any concerns or require assistance please do not hesitate to get in touch.