AGEFI Luxembourg - mars 2024

AGEFI Luxembourg 22 Mars 2024 Fonds d’investissement B etween 2012 and 2022, the Luxembourg tax authorities (LTA) havewitnessed a re- markable increase in exchange of information. In 2022, the LTAhand- led 1,038 requests for exchange of information, spontaneous ex- changes andnotifications (1) from other jurisdictions compared to just 592 in 2012. (2) With requests almost doubling in 10 years, this high- lights the expanding role of the LTA in administrative cooperation in the fieldof direct taxation. Clearly, this development has consequences for Private Equity houses establishing their holding platforminLuxembourg as they may find themselves affectedby the various forms of administrative cooperationbetweenStates. Luxembourg’s adoptionof laws, directives and conventions related to tax transparency At both the international level andwithin the European Union, Luxembourg proactively pursued measures to en- hance tax transparency, notably through the implementation of Council Directive 2011/16/EU of 15 February 2011 on ad- ministrative cooperation in the field of taxation, (3) as subsequently amended. Furthermore, on 29 May 2013, Luxem- bourg signed the Convention onMutual AdministrativeAssistance inTaxMatters and its Protocol. (4) The procedures applicable to the ex- change of information are laid down in the law of 25 November 2014, as amended. (5) Thelatterincludesprovisions related to the three types of exchange of information,thatbeingexchangeofinfor- mation on request, automatic and spon- taneous exchange of information. While automatic and spontaneous exchange of information occurs between the compe- tent authorities of the Contracting States concerned, exchange of information on request is usedwhen aContracting State requires additional information fromthe LTA relating to a specific case. These requests often entail confidential information with respect to the sub- stance and purpose of Luxembourg Pri- vate Equity platform (e.g., employment contracts, bank statements, lease agree- ments, assets owned) and failure to com- plymay result in an administrative fine. Therefore, understanding the proce- dures governing such requests, and the corresponding rights of the corporate en- tity or individual deemed to be in the possession of the information (so-called “information holder”) are of paramount importance. Considering the significance and conse- quences of exchange of information on request, the followingdevelopmentswill focus on this particular type of exchange of information. Understanding the “ForeseeableRelevance” criterion in requests to the LTA After receiving a request for exchange of information issued by a foreign tax au- thority, the LTA is obligated to verify whether or not the requestmeets the for- mal requirements. While the latter may vary depending on the concrete legal basis of the request of exchange of infor- mation, thekeycriterion tobeassessed in a second step is the standard of “foresee- able relevance” that applies irrespective of the legal grounds of the request. This criterionensuresthattherespectiveStates donot engage in so-called“fishing expe- ditions” and request information that is unlikely tobe relevant to the taxaffairs of a taxpayer. In the past, many disputes were brought before the administrative courts concern- ingtheinterpretationoftheterm“foresee- able relevance”, a concept that remained highlydebatedoveryears.However,since theimplementationofDAC7(CouncilDi- rective (EU) 2021/514), (6) this concept is now defined in domestic law (7) where it states:“ Atthetimetherequestismade,there- questing authority deems that (…) there is a reasonable likelihood that the requested infor- mation will be pertinent to the tax matters of one or more taxpayers, whether identified by name or otherwise, andbe justified for the pur- pose of the investigation ”. It remains uncer- tain whether this definition will indeed offer sufficient guidance to the LTA in theirassessmentoftherelevanceofthere- quested information. Gathering the information If the LTA concludes that the request is valid, they initiate the information gath- eringprocess. If the information is not al- ready at the disposal of the LTA, they will issue an information request ( décision d’injonction) to the information holder. This request must be precise, detailing the issuance date, the purpose of the re- quest, and thedeadline for providing the requested information. Although the usual deadline is typically set at one month, the LTAseems quite receptive to granting extensions. Replying to the request Upon receiving an information request, the informationholdermust carefullyas- sess the rationale behind the request, the foreseeable relevance of the information sought as well as any potential tax con- sequences. While there is an obligation to complywith the request, it is crucial to understand that providing information and documentation without thorough examination may lead to unforeseen consequences. In practice, it is observed that foreign tax authorities often scrutinize the substance of Luxembourg holding platformwhen initiating such request, frequentlyaiming to challenge the application of benefits under a double tax treaty. Therefore, it is strongly advised that the information holderpromptlytakesactionbyassessing whether to pursue legal remedies against the information request which can be donewithinonemonthof its notification. Additionally, seeking assistance indecid- ing to initiate legal proceedings or in re- sponding to the information request is recommended. The costly consequences of non-response If the information holder fails to provide the informationwithin thedeadline, a tax administrative fine of up to EUR 250,000 may be imposed. The amount of the fine is determined taking into account objec- tive and subjective criteria. The objective criteria for determining the fine for cor- porate entitiesnot replying to the request relies on determined data, i.e., it is set at 10% of the total amount of the total bal- ance sheet value as at 31December of the preceding year. For individuals, the fine is equivalent to 10% of the adjusted tax- able income of the year preceding the year of thefine. (8) Additionally, subjective criteria, such as the willingness of the in- formation holder to cooperate, are con- sidered in the assessment process. (9) Furthermore, incase the initial injunction order is addressed to a company that does not respond, the LTA may issue a similar injunctionorder to the company’s representative, thus transferring theobli- gation to respond toanotherperson. Fail- ure of the representative to respond within one month of receiving the infor- mation request could result in her/him being personally fined an amount of up to EUR 250,000. Legal remedies for the informationholder Prior to the decision of the Court of Jus- tice of theEuropeanUnion (CJEU) in the Berlioz case, (10) the information holder was not able to contest the validity of the information request, inparticular the as- sessmentwhether or not the information tobeprovidedmeets the criteriaof “fore- seeable relevance”. Following the decision of the CJEU and the subsequent amendment of the re- spective legislation in Luxembourg, the informationholder nowhas thepossibil- ity to file a claimagainst the information request before the administrative tribu- nal within one month after its notifica- tion. Such claim has a suspensive effect, i.e., the informationholder does not have to provide the information until the case isdecidedby the administrative tribunal. Moreover,ininstanceswheretheLTAim- posed an administrative fine, the same legal remedyapplies. Drawing fromboth the consistent case lawof the administra- tive tribunal and our own experience, it appears that if the information holder ul- timately communicates the requested in- formation, it is likely that the administra- tive tribunal may consider reducing the fine based on the demonstrated willing- ness to cooperate. (11) Conclusion It is evident that we have entered an era where tax transparency is now the inter- national standard. The validity of this ob- servation is reinforcedby the evolution of the legal frameworks concerning ex- change of information, alongside the ac- tive role of States and tax administrations inhandlingsuchrequests.Giventhisland- scape, it is essential for Private Equity houses and their Luxembourg holding platform to take a proactive approach upon receiving an information request. Ashighlighted,providingrequestedinfor- mation without a thorough review can havesignificantimplications,andthewin- dow for challenging these decisions is brief.Tomitigatepotentialrisks,recipients are strongly encouraged to exercise cau- tion.Anticipating theneedandpreparing aheadoftimecouldbeseenasabeneficial strategy for speedingup responses. *HélèneCREPIN Partner,InternationalTaxandTransactionsServices, TaxcontroversyLeader CharlotteSTEFFEN Manager,InternationalTaxandTransactionsServices EYLuxembourg 1) Luxembourg direct tax authorities ( Adminis- tration des contributions directes ): Activity Report 2022, p. 121. 2) Luxembourg direct tax authorities ( Adminis- tration des contributions directes ): Activity Report 2012, p. 15. 3) Law of 29 March 2013 transposing Council Di- rective 2011/16/EU of 15 February 2011 relating to administrative cooperation in the tax field and re- pealingDirective77/799/EECandamending1.the generaltaxlaw;2.repealoftheamendedlawof15 March1979concerninginternationaladministrative assistanceinmattersofdirecttaxes. 4) Lawof 26May 2014 approving the Convention concerningmutualadministrativeassistanceintax mattersanditsamendingprotocol,signedinParis, 29May2013andamendingthegeneraltaxlaw. 5)Lawof1March2019amendingthelawof25No- vember 2014 providing for the procedure applica- bletotheexchangeofinformationonrequestintax matters. 6)CouncilDirective(EU)2021/514of22March2021 amendingDirective 2011/16/EUon administrative cooperationinthefieldoftaxation. 7)Lawof16May2023onthemandatoryautomatic exchange of information declared by platformop- erators and transposing Council Directive (EU) 2021/514of22March2021amendingDirective(EU) 2011/16/EU on administrative cooperation in the fieldoftaxation. 8)TA13/08/2015,n°36452. 9)TA22/07/2020,n°44358 ;TA15/11/2022,n°47988. 10) CJUE, Berlioz Investment Fund, 16 May 2017, C-682/15. 11) TA 05/07/2022, n°47471 ; TA 15/11/2022, n°47988 ;TA22/11/2022,n°47971. The evolving tax administrative cooperation to be on the radar of Private Equity houses Charlotte STEFFEN &Hélène CREPIN, EY Luxembourg * ©EY Par Olivier de BERRANGER (portrait), Directeur Général et CIO, et Adrien BOMMELAER, Gérant, La Financière de l’Echiquier (LFDE) A ugmenter mais surtout sécuri- ser la capacité de production des semi-conducteurs les plus puissants, c’est l’objectif ambitieux de SamAltman, CEOd’OpenAI et concep- teur de ChatGPT. Son plan ? Garantir la production suffi- sante des semi-conduc- teurs dernière génération, indispensables au déve- loppement de l’intelli- gence artificielle (IA) générative. Un défi vertigi- neux estimé à 7.000milliards de dollars par le patron d’Ope- nAI lui-même. L’industrie des semi-conducteurs est au cœur de toutes les grandes innovations technologiques. Il n’y a pas de digitalisation possible sans puces. Il n’y a pas d’iPhone, pas de Facebook, pas de Tesla, sans puces. Il n’y a pas non plus de défense mo- derne. Ces puces sont essentielles, fournissant à la fois puissance de cal- cul et capacité de stockage. A chaque cycle d’innovation, un éco- système dominant émerge. La révolution du PC à l’aube des an- nées 1980 a été dominée par Intel, avec la complicité de Microsoft. Celle du smartphone, 25 ans plus tard, sera dominée parQualcommsur une archi- tecture ARM, le tout fabriqué à Taïwan par TSMC sur des machines ASML. La révolution technologique actuelle, celle de l’IA, sera bien plus immersive dans nos vies que les précédentes. L’IA repose sur une nouvelle architecture, le processeur GPU d’abord utilisé pour les cartes graphiques et le gaming , puis adopté plus largement par de nouvelles applications dont la conduite autonome ou le ma- chine learning . Le succès de l’IA générative, plus récemment dé- ployée,doitbeaucoupauxcapacitésintensivesdecal- cul des réseaux neuronaux artificiels, exécutées plus efficacement par l’architecture GPU que par les CPUs (1) d’Intel.L’écosystèmedominantdecettenou- velle révolution est déjà identifié. Point important, il est transnational. Nvidia aux États-Unis conçoit les GPUs. TSMC à Taïwan est la seule fonderie à avoir les fabs (2) suffisamment avancées pour la production desemi-conducteurssurlesrésolutionslesplusfines. Enfin, basée en Europe, ASML est la seule société d’équipement pour l’industrie des semi-conduc- teurs capable de développer lesmachines de litho- graphie, étape clé du processus de fabrication. Les avantages compétitifs de ces trois acteurs sont tels qu’ils devraient rester dominants pendant tout ce cycle d’innovation. De ce point de vue, ils méri- tent bien d’être désignés les Marvelous Three ! ASML, qui détient un monopole dans la lithogra- phie, vend ses machines les plus puissantes à 250 millions de dollars l’unité, TSMC a besoin de plus de 10 milliards de dollars pour chaque nouvelle fab, et Nvidia développe l’architectureGPUdepuis plus 30 ans. La croissance des bénéfices de ces trois sociétés sera, selon nous, forte et durable. Le risque éventuel pour cet écosystème ne nous semble pas d’ordre technologique. Il est ailleurs, hautement géostratégique comme a pu l’être le pé- trole. Une petite musique commence à résonner : les nations qui domineront la puissance de calcul auront un avantage important. Par conséquent, les réflexes protectionnistes gou- vernementaux mettront-ils à mal une coopération technologique internationale pouvant bénéficier à tous ? L ’Inflation ReductionAct aux États-Unis pré- voit 52 milliards de dollars pour la relocalisation des fabs . L’Europe lance son Chips Act et envisage 43 milliards de dollars pour l’installation de nou- velles fabs sur son territoire. La Chine essaie depuis longtemps, avec quelques succès, de faire naître une industrie des semi- conducteurs mais se heurte aux efforts de blocage américains sur l’accès auxmachinesASML les plus sophistiquées. Enfin, si la Chine prenait de force Taïwan, elle s’as- surerait alors le contrôle de TSMC…mais perdrait probablement l’accès à ASML. Le concept de «mondialisation heureuse» n’est plus qu’un loin- tain souvenir. La donne géostratégique constitue le principal risque pour cette industrie et donc pour les Marvelous Three ! 1) Processeurs 2) Usines où sont fabriqués les semi-conducteurs La naissance des Marvelous Three ?

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