Alternative Investments: A comprehensive tax guide

ÉCONOMIE LUXEMBOURGEOISE Over the last few decades, Luxembourg has emerged to the location of choice for alternative investments (private equity, private debt, real estate, infrastructure, etc.) in and throughout Europe. The attractiveness of Luxembourg is linked to a host of factors which have made it an essential part of the global financial architecture. These factors include a flexible and diverse legal, regulatory and tax framework, investor and lender familiarity with the jurisdiction, the availability of a qualified, multilingual workforce, the existence of a deep pool of experienced advisers and service providers, a large tax treaty network, an investor-friendly business and legal environment, and political stability, to name a few. However, while the Grand-Duchy continues to be attractive for international investors and asset managers, the climate in the international tax arena has changed significantly over the last few years. The OECD Base Erosion and Project Shifting ("BEPS") Project and related initiatives at EU level resulted in substantial tax law changes across Europe and the rest of the world. In the European Union, the transposition of two Anti-Tax Avoidance Directives ("ATAD" and "ATAD 2") resulted in the implementation of a number of anti-abuse provisions such as the interest limitation rules, the hybrid mismatch rules and a general anti-abuse rule. While substance was always an important topic for Luxembourg companies which are frequently involved in cross-border investment and business activities, the focus on economic substance only increased throughout and following the OECD BEPS Project. Therefore, it is crucial to equip Luxembourg companies with an appropriate level of substance. Another important development concerns transfer pricing which has become the hot topic in Luxembourg. In this regard, the Luxembourg tax authorities follow the OECD Transfer Pricing Guidelines which have undergone a substantive revision as a result of the BEPS Project. In anticipation of these changes, the transfer pricing regime applicable to companies performing financing activities has already been changed as from 2017. The OECD BEPS Project also had a significant impact on the global network of bilateral tax treaties. Modifications to bilateral tax treaties have been implemented through the Multilateral Instrument ("MLI") which resulted in the adoption of anti-abuse provisions such as the principal purposes test ("PPT"). Last but not least, the Luxembourg legislator implemented the mandatory disclosure regime ("MDR"), transposing DAC 6 into domestic law. Under the MDR, tax intermediaries are required to report information on certain cross-border arrangements to the Luxembourg tax authorities. This book is a practical guide which focuses on the tax treatment of Luxembourg companies involved in alternative investments. As such, this book will equally benefit tax advisers, practitioners and other professionals who have an interest in taxation.