deloitte valuation conference · january 2015. november 2015. deloitte . valuation . conference....

January 2015

November 2015

Deloitte Valuation ConferenceValuation and tax considerations

© 2015 Deloitte Tax & Consulting 2

Conference Agenda


1 Introduction

2 Luxembourg legal framework: new measures

3 Valuation for Transfer Pricing purposes

Agenda

4 Conclusion


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


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


Foreign tax administrations

Intra-group transactionsRIGHT PRICE? RIGHT VALUE?

Valuation and tax considerationsIncreased level of scrutiny


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



Agenda

4 Conclusion


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


Valuation and tax considerationsLuxembourg legal framework: New Article 56 LITL and change to § 171AO

10

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

10

OECD standards

11© 2015 Deloitte Tax & Consulting

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


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


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


1 Introduction



Agenda

4 Conclusion


14

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?


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?


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

16

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?

24

17© 2015 Deloitte Tax & Consulting

Key contacts

Pierre MassetPartner – Corporate Finance Leader+ 352 451 452 [email protected]

Strategy & Corporate FinanceStephane TilquinPartner – International Tax+ 352 451 452 [email protected]

International Tax

Thank you for listeningIf you have any questions or comments, please contact [email protected]

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deloitte valuation conference · january 2015. november 2015. deloitte . valuation . conference....

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