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Wednesday, 26 April 2017

CbCR: Luxembourg implements Directive (EU) 2016/881, what are the lessons at this stage?

26-04-2017 - The process in Luxembourg has been particularly fast, with the entry into force of the new mechanism in domestic law less than 12 months after the adoption of the Directive by the EU Council on 25 May 2016. Several questions remain open, of course, but with the deadline for notification for FY 2016 already behind us, the ‘mist is clearing’ on certain positions taken by the Luxembourg administration.


Once again, Luxembourg ranks among the “early adopters” of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (“CbC MCAA”) signed on 27 January 2016, developed under the 2015 Final Report of Action 13 of the OECD’s BEPS action plan, relating to Transfer Pricing Documentation and Country-by-Country Reporting. Putting Transfer Pricing to one side for the purposes of this article, the idea is to impose the annual filing of a report detailing, for each country, certain data such as turnover, profits or losses before tax, taxes paid or due, share capital, retained earnings, number of employees, tangible assets and cash available, together with each subsidiary’s respective identity and jurisdiction of residence.

On 25 May 2016, the EU Council adopted Directive (EU) 2016/881 (DAC4) (hereafter “the Directive”) establishing rules on country-by-country reporting, directly inspired by the OECD’s efforts and standards in the field of the exchange of information in tax matters. The Directive amends Directive 2011/16/EU concerning the mandatory automatic exchange of information in the field of taxation, and uses the 2015 Final Report on Action 13 of the OECD as a source of interpretation for the Directive to ensure consistency of application across Member States.

The Directive’s implementation deadline for Member States is 4 June 2017, and Luxembourg was again very quick in implementing it into domestic law, being as early as December 2016. The Luxembourg law of 23 December 2016 (hereafter “the Law”) is actually a mere copy of the Directive, including the template for the CbC report.

A duty to notify, and a requirement to file

In summary, the Ultimate Parent Entity, the Surrogate Parent entity or the “EU designated entity” of a Multinational Enterprise Group (“MNE Group”), resident in Luxembourg for tax purposes, is required to file a CbC report in Luxembourg for a Reporting Fiscal Year, within 12 months of the last day of that Reporting Fiscal Year.  

As a de minimis rule, any MNE Group whose total consolidated group revenue is less than EUR 750,000,000 in the year preceding the Reporting Fiscal Year remains, for the time being, outside the scope of the notification duty/reporting requirement.

The first Reporting Fiscal Year being any Fiscal Year starting on or after 1 January 2016, such a threshold will be examined – for the Reporting Year 2016 - by reference to the Fiscal Year 2015 and this, despite the confusing wording of the Law in Article 1 of Section I of the Annex.

Such a duty rests with either: (i) the Ultimate Parent Entity or, by default, (ii) the Surrogate Parent Entity, or (iii) the “EU designated entity”.

The Ultimate Parent Entity is the EU resident entity that owns a sufficient interest in one or more EU entities such as that it is required to prepare Consolidated Financial Statements according to the accounting principles that are “generally applied” in its jurisdiction of residence.

The Surrogate Parent Entity is an entity within a MNE Group that is appointed as such by the group, as a substitute for the Ultimate Parent Entity when such an Ultimate Parent Entity itself is not subject to a filing obligation.

An “EU designated entity” (not defined as such in the Directive) is an entity resident in Luxembourg, designated as such by a MNE Group for lack of effective reporting by the Ultimate Parent Entity.

While the first CbC report (not notification) for Ultimate Parent Entities, Surrogate Parent entities or “EU designated entities” of eligible MNEs is understood to be due by 31 December 2017, such entities are also subject to a distinct requirement, i.e. to notify such a capacity to the Competent Tax Administration of their country of residence. In other words, a Constituent Entity must notify, in view of its subsequent obligation to report, whether it constitutes an Ultimate Parent Entity, a Surrogate Parent entity or an “EU designated entity” of a MNE Group.

Reporting Fiscal Year 2016 is the first Fiscal Year covered by the new Law, and so the deadline for such notification, which expired on 31 December 2016, was exceptionally extended to 31 March 2017 by the Luxembourg Tax Administration in a newsletter dated 27 December 2016. An on-line portal, for both notification and report filing purposes, has been created by the Luxembourg Tax Administration.

This first deadline having lapsed almost one month ago, it is worth underlining that the absence of notification can be fined by up to a hefty EUR 250,000.

Open questions

Although the wording of the Law may appear rather straightforward, questions have arisen about the definition of several concepts, including that of Consolidated Financing Statements, or of the related concept of Ultimate Parent Entity.

As the Directive refers in this respect to “the financial statements of an MNE Group in which the assets, liabilities, income, expenses and cash flows of the Ultimate Parent Entity and the Constituent Entities are presented as those of a single economic entity”, it is not entirely clear whether this wording refers to Luxembourg GAAPs as defined by the law of 19 December 2002, or if it also covers accounts established under IFRS rules by virtue of the option opened up by the law of 10 December 2010.

Despite initial hesitation, it now appears that the Luxembourg Tax Administration considers that Luxembourg GAAPs prevail, and support for this approach is found in the definition of Ultimate Parent Company by reference to its obligation to prepare Consolidated Financial Statements “under accounting principles generally applied in its jurisdiction of tax residence”.

It is anticipated that many other questions will arise in the coming months with the 31 December 2017 Report filing deadline looming. The Administration has committed to publishing regular updates on interpretations of the Law in a dedicated “Frequently Asked Questions” page.


For more information:

Jean-Luc Dascotte - partner Tiberghien (

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