On 3 May 2016, the Liechtenstein Government released a consultation report on proposed amendments to the tax legislation. The report, prepared by the Fiscal Authority, includes various points on the implementation of measures against base erosion and profit shifting (BEPS). The new law shall enter into force effective from 1 January 2017.
The consultation report proposes the following amendments to the tax legislation:
- Introduction of the correspondence principle for dividends to avoid double non-taxation (no participation exemption if the dividend payment was deductible in the source country)
- Abolishment of intellectual property (IP) box regime with transitional period for existing IP boxes until the end of 2020
- Formal definition of the term “ruling” in the tax act
- General transfer pricing documentation requirement (no filing requirement proposed)
- Other minor amendments
The draft legislation in the report generally follows the recommendations of the Organisation for Economic Co-operation and Development (OECD) as presented in October 2015 in the BEPS final reports. By introducing additional legislation later in 2016, it is expected that Liechtenstein will implement the three-tiered approach for large companies (master file, local file, Country-by-Country (CbC) reporting).
The draft legislation published with the consultation report on 3 May 2016 reflects Liechtenstein’s repeated confirmation to comply with the OECD standards in the area of corporate taxation. In addition to the published tax law amendments, Liechtenstein intends to amend the existing tax administrative assistance act and introduce separate legislation later this year based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) in order to fully comply with the OECD BEPS minimum standards.
The now published draft legislation includes the following amendments:
Introduction of correspondence principle (BEPS Action 2)
In the consultation report Liechtenstein proposes to introduce the correspondence principle for distributions out of investments held by a Liechtenstein entity or individual (if investment is qualified as a business asset). This means that the participation exemption on dividend income in Liechtenstein may only apply if the payment was not qualified as tax deductible in the source country. By introducing this domestic hybrid mismatch rule, double non-taxation should be avoided.
Abolishment of IP box regime (BEPS Action 5)
In 2011, Liechtenstein introduced an IP box regime into the tax law. Patents, brands, models and registered designs are considered intellectual property rights under this IP box regime, provided that they are protected by entry into a domestic (Liechtenstein), foreign or international registry and have been created or acquired as of 1 January 2011. However, this wide scope of eligible types of IP does not comply with the modified nexus approach of the OECD. Consequently, the Liechtenstein Government has decided to propose the abolishment of the IP box regime. For companies currently taking advantage of the IP box rules, a transitional provision until the end of fiscal year 2020 is to be applied.
Whether a new IP box regime is to be introduced at a later stage will be subject to further analysis by the authorities.
Definition of term “ruling” (BEPS Action 5)
The consultation report proposes to introduce a general legal definition of the term “ruling” in the tax law. According to the draft legislation, the tax administration will be entitled to issue upon request a binding statement concerning the fiscal consequences of a specific, not already materialized fact or transaction. As stated in the consultation report, to obtain such a ruling the taxpayer has to file a written request outlining all necessary information.
Details on the requirements to apply for a ruling and on the form, content, binding effect and cost of a ruling will be determined in the tax ordinance by the Liechtenstein Government at a later stage.
With regard to the spontaneous exchange of information on advance tax rulings and similar instruments, the legal basis will be Article 7 of the MAC which currently is subject to the national ratification procedure in Liechtenstein. In this respect, the existing tax administrative assistance act will be amended accordingly.
Transfer pricing rules (BEPS Action 13)
According to article 49 of the draft tax law, taxpayers will be obliged to provide upon request of the tax authority (no general filing obligation), documentation regarding the adequacy of transfer prices of transactions with related companies or related permanent establishments. Details regarding the calculation of transfer prices and the respective documentation will be determined in a separate ordinance by the Government. As stated in the consultation report, it is expected that the ordinance will require so called large companies to apply internationally recognized guidelines on transfer pricing (e.g., master file, local file) for their documentation. A company qualifies as large (following Liechtenstein company law) if three criteria are exceeded: (i) total assets CHF25.9m, (ii) net revenue CHF51.8m and (iii) annual average of 250 full time employees. For smaller companies, lower documentation requirements shall apply (principle of reasonableness).
Besides the amendments with respect to the G20/OECD BEPS project, the consultation report proposes some (minor) additional amendments. In particular, according to the draft legislation, compensation paid to foreign legal persons in accordance with their role as a member of the board of directors or management of a Liechtenstein entity shall be subject to withholding tax.
Country by Country Reporting (BEPS Action 13)
In January 2016, Liechtenstein signed the OECD Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA) on CbC reporting. The MCAA is based on the MAC and aims to achieve the uniform implementation of the automatic exchange of information standard. However, to implement the MCAA it is required that national transposition legislation is introduced and the MAC put into force in Liechtenstein and the corresponding foreign jurisdiction.
Based on this, national transposition legislation shall be introduced in autumn 2016 which is not part of the current consultation report on the amendment of the tax act. It is understood that the CbC reporting shall be required by multinational companies with annual revenue of €750m or more (in line with OECD guidelines). As the MAC has not been ratified yet by Liechtenstein (in process), it is expected that concerned multinational enterprises in the interim will have to file CbC reports directly with the respective foreign jurisdictions if demanded by the local tax authorities (secondary filing, not via Liechtenstein tax administration). Alternatively, companies might consider applying a surrogate filing procedure in another jurisdiction.
The consultation phase for the proposed tax law adjustments will run until 17 June 2016. Subsequently, the draft tax legislation shall be submitted to Parliament for approval. It is expected that the new regulations will enter into force on 1 January 2017.
EYG no. 01099-161Gbl
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