Comment l'action 5 du projet européen BEPS impacte le traitement fiscal des revenus issus de la propriété intellectuelle au Luxembourg

Abstract

Today, in the era of the globalization, businesses and organizations have developed international influences: this has brought forward a lot of change in companies’ structures. Companies are now formed by several worldwide subsidiaries. Furthermore, digitalization has also brought an in-depth change in the way companies operate with the greater development of intangible assets. Given that tax rules do not reflect economic reality, big companies are now able, more than ever before, to set up complex financial schemes to reduce their actual tax rate. Luxembourg legislator understood the growth potential and the international fame that the presence of the biggest world groups on its territory can bring. They created measures particularly well adapted for the multinationals’ tax optimization. The 80% tax exemption regime for IP income attracted numerous well-known multinationals, as far as it offered a completely legal way of benefiting from reduced tax rates on royalties. Non double taxation treaties have established royalties’ taxation rules allowing companies to use legal loopholes when setting up tax avoidance models. As the benefit of this, IP tax regime was not subjected to IP development condition in the territory, companies subsidiaries established in Luxembourg were, for the most part, empty shells whose activity was strictly limited to royalties’ flows management. In this way, biggest companies legally transferred their worldwide profits towards Luxembourg where they were weakly taxed without even exercising substantial activities on the territory. This harmful phenomenon is called “Base Erosion & Profits Shifting” (BEPS). It causes an economic shake-up at the level of investment, growth and employment. Moreover, it grants to company operating in several countries an unfair competitive advantage with regard to small companies. Finally, it compromises tax revenues of member states, which causes a heavy tax burden on the other taxpayers. This tax avoidance trend was deeply criticized by the public as well as the European Commission, particularly after the Lux leaks scandal. OECD and G20 member states decided to fight the BEPS phenomenon The G20 asked OECD to address this growing problem by creating a 15 actions plan. This plan aim to equip governments with domestic and international instruments to address tax avoidance and sets timelines for the implementation, ensuring that profits are taxed where economic activities generating the profits are performed and where value is created Action 5 of BEPS package, entitled “Countering harmful tax practices more effectively, taking into account transparency and substance” is one of the four BEPS minimum standards. Action 5 Report consists of two parts. One part is related to preferential tax regimes such as IP regime, where a peer review is undertaken to identify features of such regimes that can facilitate BEPS. IP regime are now subjected to a substance condition implemented by the “Modified Nexus Approach” which would allow benefits granted with respect to IP income in line with the expenditures linked to generating such income. The second part includes a commitment to transparency through the compulsory spontaneous exchange of relevant information on taxpayer-specific rulings which, in the absence of such information exchange, could give rise to BEPS concerns. As many other European countries, Luxembourg thus had to revise its IP regime which was considered as harmful. The new one resulting from 17 April 2018 national law is now completely in line with action 5 BEPS requirements.