On 16 September, the OECD published the first part of its recommendations aimed at overhauling international tax practices.

Deloitte’s tax experts, including Head of Tax, Raymond Krawczykowski, analysed and explained the practical consequences that could ensue from the seven recommendations and reports that were presented by the OECD on 16 September. These recommendations cover the following subjects: e-commerce, harmful tax practices, transfer pricing issues in the key area of intangibles, rules on transfer pricing documentation to be supplied, the use of hybrid instruments in international taxation, access to treaties intended to avoid double taxation and, lastly, the implementation of a multilateral instrument.

The keynote speakers stressed that these initial OECD recommendations were limited to the principles without any concrete adaptation measures, due to the lack of a definitive consensus on certain principles. To illustrate this in concrete terms, discussions on the requirements for economic substance regarding the intellectual property regimes (“IP Box”) were mentioned. Countries are still divided on the approach which should be considered in that field. The same goes for access to treaties intended to avoid double taxation where it is recognised that anti-abuse clauses will be needed, but there are still no precise details with respect to their ultimate content.

Deloitte’s experts also explained that for some of these recommendations doubts remain about their compatibility with the principles of the European Union, in particular relating to the single market and freedom of establishment of companies.
Raymond Krawczykowski noted that “we should not lose sight of the fact that the principles published by the OECD remain recommendations, which means there should be a continuous and careful monitoring of how these regulations will be implemented in the various countries and to ensure that the same rules apply to all countries. Luxembourg should remain a preferred location of choice for multinationals.”

The speakers further stated that in spite of these uncertainties, these new international regulations will undoubtedly have repercussions in the short or medium term on the firm structure, especially for multinational groups.
“As many of these groups have their European headquarters in Luxembourg, our country will certainly need to adapt by focusing on aspects including economic substance and activity, the two criteria underpinning all of these new regulations” explained David Bernard, Partner at Deloitte Luxembourg, adding that “many international groups have actually anticipated the OECD’s recommendations by attracting additional resources to their headquarters in Luxembourg”.

This concept of substance already forms part of the current government’s programme and Deloitte’s specialists are urging the government to respond swiftly with appropriate measures to ensure that Luxembourg remains attractive and flexible internationally.
 
The next OECD results are expected for September 2015. Meanwhile, new reports covering the eight BEPS measures are likely to be published.