Ireland and Luxembourg-the Updated EU Annex I List
12 Oct 2020
This update considers the impact of this development on certain tax reporting and other tax measures in Ireland and Luxembourg.
DAC6 is the new EU Mandatory Disclosure Regime requiring disclosure of certain cross border transactions which are considered to involve potentially aggressive tax planning arrangements by intermediaries assisting in those transactions.
In that context, it is important for intermediaries reviewing transactions with the Cayman Islands, a significant location for international investment into Europe, to note that ECOFIN announced that the Cayman Islands has been removed from the Annex I list.
It is important to note that this particular Hallmark C1 does not require that the "main benefit" test (or business purpose test) also be met. Effectively, this means that any arrangements falling within the terms of this limb of Hallmark C1 are automatically reportable, regardless of whether obtaining a tax advantage could have been one of the main benefits for the participants in entering into the arrangement.
Irish corporate taxpayers filing their corporation tax returns in Ireland this year will have noticed a new information seeking section included in the Irish Revenue CT1 form online. The new section asks whether, during the accounting period in question, the taxpayer entered into any transactions involving the payment of royalties, interest or dividends to a person in any jurisdiction which is currently (i.e. at the time of the return filing) considered as a non-cooperative jurisdiction for tax purposes.
Luxembourg tax authorities currently require disclosure on the corporate tax returns to the extent there are any transactions with related parties in Annex I jurisdictions.
Impact on the EU "Defensive Measures" for Annex I Countries
This draft tax law on the "defensive tax measures" which the EU has suggested should be in force by 1 January 2021 for Annex I jurisdictions. This generally aims at denying interest and royalty expenses to a related corporate entity established in an Annex I jurisdiction. More information on this draft law can be found in our March 20202 update.
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