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This is important as the close of fiscal-year 2021 (“FY21”) will bring with it the deadlines for various Country-by-Country Reporting (“CbC Reporting”) obligations for many Luxembourg companies.
Moreover, the European Union has recently approved a new ‘public CbC Reporting’ scheme. The new law has yet to come into effect, but will ultimately mandate the public disclosure of the CbC Report, which will add to Multinational Enterprises’ (“MNE’s”) CbC Reporting compliance requirements.
CbC Reporting is linked to a business’s accounting period, meaning many in-scope Luxembourg entities are now approaching the deadline to fulfill their CbC Reporting obligations. The CbC Reporting requirements were introduced in the European Union, with the European Union Council Directive 2016/881 and were transposed into Luxembourg legislation in 2016 under the bill N°7031 (the “CbC Law”). The CbC Law includes two types of reporting obligations; the CbC Notification and the CbC Report. While the aforementioned existing reporting obligations remain unchanged, the EU’s new Public CbC Reporting scheme is approaching final approval and will add to MNE’s CbC new compliance requirements.
The CbC Law only concerns MNEs whose global (consolidated) turnover exceeds EUR 750 million. This is the case for both the CbC Report and CbC Notification.
If the ultimate parent company of a MNE is a resident in Luxembourg for tax purposes, they are obligated to submit the CbC Report. Another (surrogate) reporting entity may also be designated to submit the CbC Report. In addition, the obligation to submit the CbC Report may be shifted to a Luxembourg tax resident entity in the following circumstances:
- The foreign ultimate parent company is not under an obligation to file the CbC Report in its country of residence.
- The foreign ultimate parent company is under an obligation to submit the CbC Report in its country of residence but lacks a competent authority which circulates the Report.
- The foreign ultimate parent company is under an obligation to submit the CbC report in its country of residence, but the circulation of the Report is prevented by a systemic failure.
The scope for the CbC Notification is more extensive: Any constituent entity of the MNE that is resident in Luxembourg for tax purposes is obligated to periodically file the CbC Notification. Consequently, if an MNE has multiple entities being tax resident in Luxembourg, they are all under an obligation to submit the CbC Notification.
3.1. The CbC Report
The CbC Report is the more substantively comprehensive CbC reporting obligation, requiring global aggregate information on all of the following:
- Identity, tax residence, and business or activity of the MNEs Group’s constituent entities.
- Profit (or loss) before tax;
- Tax paid on profits;
- Tax due on profits;
- Corporate capital;
- Retained earnings;
- Number of employees;
- Tangible assets.
3.2. The CbC Notification
The CbC Notification requires entity specific information relating to the entity submitting the notification, including the following elements:
- Name, address and Tax Identification Number of the entity;
- Fiscal accounting period;
- Business activity;
- Identity and tax residence;
- Identification of MNEs Group’s reporting entity and its TIN number.
4. Procedure and Deadlines
Both the CbC Report and the CbC Notification must be submitted online. The reporting obligations have separate procedures to follow, but both are available on and must be filed through the online portal.
4.1. The CbC Report
The deadline to file the CbC Report is one year after the last day of the MNE’s fiscal accounting period. In other words, the CbC Report corresponding the fiscal year 2020 (i.e. with an accounting period running 01/01/2020 – 31/12/2020) would be due on the 31/12/2021.
4.2. The CbC Notification
The deadline to submit the CbC Notification is the last day of the MNE’s fiscal year. In other words, if the MNEs Group ends its fiscal year on the 31st of December, this will also be the deadline to submit the CbC Notification corresponding to that fiscal year.
The penalties for non-compliance with the CbC Reporting obligations in Luxembourg can go up to EUR 250,000. There is limited public guidance on the application of the penalties and as such, anticipating the cost of various degrees of non-compliance is difficult in practice.
6. “Public” CbC Reporting Directive
Having spent considerable time in political deadlock, on the 28th of September 2021 the European Council adopted the colloquially named ‘Public CbC Reporting Directive’, which amends Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches. This amendment adds to the existing CbC Reporting obligations by requiring the reporting MNEs Group to publish their CbC Report to the general public.
The Public CbC Reporting Directive has not become effective at the time of the publication of this newsletter, but progress is being made in that direction, with the directive having received approval on the 11th of November in the European Parliament’s plenary session. This represents the last stage in the approval process before formal publication. Once it has been published in the Official Journal of the European Union, member states will have 18 months to transpose the amendment into national law. Consequently, taxpayers can expect that the new obligations will become effective in 2024 (the new rules would be applicable to FYs starting in or after June 2024). Nonetheless, EU member states could implement said rules earlier.
For more information, please contact:
- Jean-Nicolas Bourtembourg - Partner, Head of Tax & Transfer Princing