Post on 05-Apr-2018
January 2015
November 2015
Deloitte Valuation ConferenceValuation and tax considerations
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Conference Agenda
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1 Introduction
2 Luxembourg legal framework: new measures
3 Valuation for Transfer Pricing purposes
Agenda
4 Conclusion
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Valuation and tax considerationsValuation for Transfer Pricing purpose: Panelists
Douwe TerpstraExecutive Director, Intertrust Luxembourg
Bruno BeernaertsIndependent Director
François LerussePartner, D. Law
Henri PrijotPartner, Deloitte – International Tax
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Intercompany transactions Physical goods: purchases and sales of goods
Intangible property: IP license fee, sale of IP right, etc.
Services: legal, accounting, IT, financial, HR etc.
Financing arrangements: interest rates, guarantee fees, etc.
Valuation and tax considerationsIntroduction
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Foreign tax administrations
Intra-group transactionsRIGHT PRICE? RIGHT VALUE?
Valuation and tax considerationsIncreased level of scrutiny
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0
500
1000
1500
2000
2500
3000
3500
4000
1990 2000 2010
2003 SavingsDirective
2005 modification of Article 26 OECD MC
2008 modification of Article 26 UN MC
2010 Directiveon mutual assistance for recovery
2011 OECD Convention on Mutual Administrative Assistance
2011 Directiveon administrative cooperation in the field of taxation
Billion US Dollars Country by country reporting
FATCA
2002 OECD Model TIEA
1981 Gordon report
1979 Directive on Mutual Assistance
Non OECD flows (Brazil, China, India, Indonesia,Russian Federation, South Africa)
UE action plan to fight tax fraud and evasion :- Extension of automatic exchange of information- Business taxation- VAT fraud
15 BEPS actions
OECD flows
Investments flows inExtension of Savings directive
1986 OECD reports on “Double Taxation and the Use of Base companies”and “Double
Taxation and the Use of Conduit Companies”
1988 OECD Convention on Mutual Administrative Assistance
Valuation and tax considerationsIntroduction
© 2015 Deloitte Tax & Consulting
1 Introduction
2 Luxembourg legal framework: new measures
3 Valuation for Transfer Pricing purposes
Agenda
4 Conclusion
© 2015 Deloitte Tax & Consulting 9
Valuation and tax considerationsLuxembourg legal framework: until 2015
2011 2013 201420102009 2015
OECD Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations
Two Luxembourg circulars on intra-group
financing Transfer Pricing
OECD Report on the Attribution of Profits to the Permanent Establishments
(“Authorized OECD Approach”)
New coalition program with the intention to regulate
Transfer Pricing
Draft law, “Package for the Future”
New legislation: amendment of article
56 LITL
1 January 20153 December 201322 July 2010
28 January 2011 8 April 2011 15 October 2014
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Valuation and tax considerationsLuxembourg legal framework: New Article 56 LITL and change to § 171AO
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Transfer
Pricing
Arm’s length principle() No explicit reference in the LITL
New Art. 56 LITL consecrated to arm’s length principle
Arm’s length principle Art. 9 OECD MC Chapt. I OECD Guidelines
Luxembourg Domestic legislation
TP adjustment Art.164 (3) LITL
New Art. 56 LITL aligned on Art. 9 OECD MC
Upward TP adjustment Recognized in OECD() No detailed guidance
Associated enterprise() Circular follows definition of Art. 9 OECD MC
New Art. 56 LITL includes the definition
Associated enterprise Art. 9 OECD MC
Comparability analysis and methods() No detailed TP regulations but indirectly addressed
by the Circular
Comparability analysis and methods Chapt. II and III OECD Guidelines
Documentation requirements() General provision in §171 AO No specific documentation requirement() Only for APA on intra-group financing
New Art. 171 LITL expressly stipulates transfer pricing documentation upon request Further development by Circular
Documentation requirements Chapt. V OECD Guidelines
Action 13 BEPS
Penalties? Non specific penalties
Penalties recognized in OECD() no detailed guidance
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OECD standards
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Significant changes to the compliance and reporting of global information for risk assessment and transferpricing purposes : The Country by Country reporting likely to be used for risk assessment purposes only
To be prepared by the ultimate parent (no public disclosure). Flexibility for source of data
Substantial changes for those business which do not prepare their transfer pricing documentation on aglobal basis. Necessary to prepare or coordinate the documentation centrally to ensure consistency ofcountry-by-country template, master file and local files
A lot of open questions : filing process, timeframe, frequency of updates, language, confidentiality,sharing mechanism, materiality, penalties, exclusion of smaller groups, coexistence with existing TPrules…
Anticipated implementation dates for most countries 2016-2017
© 2015 Deloitte Tax & Consulting
Valuation and tax considerationsLuxembourg legal framework: future trends Example: BEPS Action 13
• Information on the global allocation of income, the taxes paid and certain indicators of the location of economic activity among tax jurisdictions in which the Group operates
List of entities per tax jurisdiction
COUNTRY-BY-COUNTRY REPORT• Aggregate tax jurisdiction-wide information• Available to each relevant tax administration • To be finalized maximum 1 year following the last
day of FY of the Ultimate Parent
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Succesfull regime
Treaty network
Allowing deductibility of expenses
Flexible thin-cap rules
No third-party valuation for Sàrl
No complex TP rules
UTILIZATION OF TAX LOSSES
Tax consideration: such flexibility could lead to an inappropriate orunjustifiable exploitation of tax losses and raise inquiries about their legitimacy
Valuation and tax considerationsLuxembourg legal framework: overview of some key tax
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1 Introduction
2 Luxembourg legal framework: new measures
3 Valuation for Transfer Pricing purposes
Agenda
4 Conclusion
© 2015 Deloitte Tax & Consulting 14
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Valuation and tax considerationsValuation for Transfer Pricing purposes: Theory
Context
TP
Driver Issue Solution
Transfer pricing issues
Intragroup transaction
Absence of third party
Fairness of transaction?
Price Arm length? Benchmarking
Legal frameworkEuropean &
Luxembourgish rules and
regulations
Quantity Fair value? Valuation
European guidelines (IFRS,
IPEV, INREV, etc.)
Tax avoidance?
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LuxCo takes out a loan with Mother Company andacquires Company A for 100m EUR
Company A pays management fees to the LuxCo
The LuxCo sells Company A to a third party for 80mEUR
Valuation and tax considerationsValuation for Transfer Pricing purposes: Case study 1
LuxCo Company A
Mother Company
Structure
1
Operations1
Company A
LuxCo
1
2
3
2
Third party
3
Company A
Issues
Acquisition price? Intra-group vs 1/3 party valuation?
Interest rate? Thin capitalisation?
Management fees amount?
Sustain deductibility of the loss?
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CIK of IA 3
Capital increase in the LuxCo linked to the CIK of IA 3
Related Company sells IA 2 to the LuxCo
The LuxCo takes out a loan with the Mother Company inorder to finance the acquisition of IA 2
Group Companies pays royalties to the LuxCo
Amortization of the IAs
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Valuation and tax considerationsValuation for Transfer Pricing purposes: Case study 2
Structure Operations1
2
3
4IA 1
IA 2
IA 3
Related Company
Group Companies
LuxCo
1
IA 3
IA 2
3
Capital increase
5
Amortization6
Intragroup financing
5
6
Issues
Acquisition price?
Amount of capital increase?
Acquisition price?
Interest rate? Amount of debt?
Royalties amount?
Level of amortization?
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17© 2015 Deloitte Tax & Consulting
Key contacts
Pierre MassetPartner – Corporate Finance Leader+ 352 451 452 756pmasset@deloitte.lu
Strategy & Corporate FinanceStephane TilquinPartner – International Tax+ 352 451 452 702stilquin@deloitte.lu
International Tax
Thank you for listeningIf you have any questions or comments, please contact valuation@deloitte.lu
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