CD: Could you provide a brief overview of recent tax enforcement in your jurisdiction? Have you observed an escalation in the number of tax disputes between companies and regulators over the past 12 months?

Gniadecka: In Luxembourg in 2016 and 2017, similar to other Organisation for Economic Co-operation and Development (OECD) countries, we have observed the step-by-step implementation of the key rules set out in the Base Erosion and Profit Shifting (BEPS) framework. Luxembourg provided updated guidelines for financial transactions and, as from 1 January 2017, introduced a further article, 56bis, into the Luxembourg Income Tax Law (LITL). The new article incorporates the principles of chapters 1 to 3 of the OECD guidelines, focusing on substance and equity requirements for intra-group financing activities. As the new requirements are still ‘fresh’, both for companies and authorities, it is difficult to judge if they have already brought the increased number of tax audits or disputes. Currently, taxpayers focus on reviewing their tax policies and transfer pricing studies, as well as legal documentation and manual procedures in respect to new functionality and equity requirements.

Oortwijn: The Netherlands’ tax enforcement environment consists of general and targeted tax audits as well as a horizontal monitoring programme using a taxpayers’ implemented tax control framework. Horizontal monitoring is a form of working in the present based on mutual trust, understanding and transparency between the company and the tax authorities. It has been deemed fit for the Dutch tax culture of collaboration and negotiation, unlike in other jurisdictions, such as Sweden, where it failed. There has been a significant and higher than expected increase in horizontal monitoring arrangements in 2016. The Dutch Court of Audit recently confirmed the proper working of these preventive enforcement measures but questioned the effectiveness of it. The number of tax disputes between companies and tax authorities on mainly cross-border transactions increased exponentially during the last 12 months.

Jul-Sep 2017 issue



EA Tax Score

Ropes & Gray, LLP