Special serie COVID-19 - n°4 - Tax support measures and updates

In the context of the difficult evolving situation in connection to COVID-19, most companies are currently facing unprecedented legal issues within their organisations. As a result, they have to significantly adapt their way of working to go through this unique time in the best possible and efficient manner. In order to assist you in this task, we have identified several hot topics. We propose to present each of these points in a separate newsletter, to be published within the coming day, where we will provide you with practical hints to approach the situation efficiently.

The fourth issue of our special serie will focus on tax issues and updates. Indeed, Luxembourg has taken several tax measures to support companies and individuals to go through this exceptional crisis, summarized hereinafter and within a table below. 

We also considered important to inform you that DAC 6 law was also voted.

1. Luxembourg corporate income tax Covid 19 support measures

Exceptional tax measures

• Possibility to request on line the cancellation of tax advances normally due in relation to the first and second quarters of 2020 

• 4 month deferred payment of CIT, MBT and NWT liabilities due 

• Postponement of the filing date for tax returns to June 30, 2020 

Please note that our network compiles a global summary on a daily basis on Covid 19 measures per country: 

https://www.pwc.com/gx/en/services/tax/navigate-the-tax-measures-in-response-to-Covid-19.html?c1=luxembourg

Company permanent establishment risk reminders

From a corporate tax perspective, the presence of employees/managers of a Luxembourg company in another country may lead to the recognition of a permanent establishment ("PE") in that other State. This may lead to a profit split between the Luxembourg Head Office and the other country. In principle, based on the tax treaty concluded between Luxembourg and foreign countries, business profits attributable to a PE should be exempt in Luxembourg and taxed in the other foreign countries.  

As a basic principle, the higher the person working abroad is in the internal management hierarchy, the higher the risk exists of creating a PE abroad and attracting profits abroad. So far, there is no specific guidance related to the current situation other than the usual taxation principles. Some internal guidelines should be established to minimise such risk, if possible. 

If the only reason for not attending physically board meetings in the country of the tax residency of the company is due to the spread of Covid-19 and related travel / circulation restrictions, this should not be considered in practice as an infringement of the substance requirements for tax residency as everyone if facing exceptional events and circumstances. However, we highly recommend ensuring that no permanent establishment is created outside Luxembourg involuntarily because activity carried out would be not carried anymore in Luxembourg but in another country.  

2. VAT 

• The Luxembourg VAT administration declared that, until further notice, no fines will be levied for late filing of VAT returns. This administrative tolerance is linked to the Covid19 situation. 

• Additionally, Luxembourg Ministry of Finance announced that the authorities will automatically and speed up pay back all VAT credit balances below EUR 10,000. 

3. Personal tax 

• Postponement of the filing date for tax returns to June 30, 2020 

• Home based working: one of the typical specific topics for Luxembourg is the need to work from home outside Luxembourg for certain persons. The answer remains for the time being different according to the neighbouring countries of residency: 

• French tax Residents: The French and Luxembourg authorities have agreed that the current situation linked to the Covid-19 constitutes a case of "force majeure". Therefore, it was agreed that from 14 March 2020, the presence of workers at their home to exercise their activity may not be taken into account in the consideration for the calculation of the period of 29 days (provided by the new DTT as a threshold). This measure is applicable until further notice but specific procedures for applying this exceptional measure will be specified at a later date. 

• Belgian tax residents: Belgium and Luxembourg authorities agreed that from 14 March 2020 days spent working from home will not be considered for the calculation of the 24-day ceiling applicable to Belgian tax residents working for a Luxembourg employer. This measure applies until further notice. 

• German tax residents: No measure has been taken yet. In absence of further clarification, the 19-day rule applicable to German tax residents working for a Luxembourg employer should apply normally. It is however expected that recent evolutions in the situation and current debates in the neighbouring German Länder may lead to show some flexibility as well and may be similar to measures adopted for French and Belgian tax residents. 

4. Litigation deadlines 

• In order to avoid spreading the Covid-19 virus and protecting rights of defendants, all judicial deadlines have been suspended as from March 26, 2020, excepted in very limited cases: http://legilux.public.lu/eli/etat/leg/rgd/2020/03/25/a185/jo

5. Other measures to be kept in mind: DAC 6 law voted

• DAC 6 law will enter into force as from 1 July 2020.  

• Cross-border reportable transactions by EU-based intermediaries are those for which implementation occurred as of 25 June 2018.  

• Any transaction involving two countries where at least one is in the European Union is in scope.   

• Intermediaries may be exempted from their reporting obligation where such an obligation would breach the rules of legal professional privilege that apply under the national law.  Those intermediaries are lawyers, auditors and qualified accountants essentially. In such case, said exempted intermediaries have an obligation to inform, within 10 days as from the key date of the transaction, each other intermediary or the taxpayer, of their reporting obligations. 

• Fines of up to EUR 250,000 per breach might be applied when this reporting obligation is not met. 

Summary of tax considerations:

Please contact our Tax expert should you need any assistance in relation to the above.