Worldwide - Tax Authorities - Tax Trends And Developments For MNEs (2024)

As 2023 nears its end, it is time for our annual taxbulletin. This bulletin focuses on the tax trends and developmentswe foresee for 2024 and includes tips and takeaways.

In this update, our specialists inform you aboutrelevant current tax developments and trends in the Netherlands,Belgium, Luxembourg and Switzerland that have an impact on MNEs.You will appreciate that the nature of these developments differsper country, so our aim has been not to discussthe sametopics for each country. Our specialists will start with Europeantax developments and trends, because important corporate taxproposals were released by the European legislator in 2023 and thistrend is expected to continue in 2024.

We thank all the authors for their valuablecontributions.

Please download the full version of our tax updateor read the online version below.

Tax trends and developments forMNEs

European tax developments

The future landscape

It remains to be seen if and when all Member States canagree on the Commission's ambitious agenda.

In 2023, the European Commission started the implementation ofits ambitious tax agenda. We have seen the Court of Justice of theEuropean Union ('EU') rule that no common EU arm'slength principle exists, only to see the Commission propose adirective harmonising transfer pricing in the European Union lessthan a year later. We have also seen the adoption of the Pillar TwoDirective at the end of 2022, while the European Commissionproposed a directive introducing the common corporate consolidatedtax base in 2023 ('BEFIT'). In line with this ambitiousagenda, various other directives were proposed by the Commission inthe area of direct taxation.

This raises the question what the future of direct taxation inthe EU will look like. The most logical takeaway is that direct taxlaw in the EU is evolving from a national to a pan-Europeanlandscape. Direct taxation is currently in principle fully in thesovereignty of Member States, with the Court of Justice of the EUruling on what is not allowed by Member States under thefundamental freedoms and with only limited areas harmonised throughdirectives. The increase of positive EU direct tax law is expectedto continue; more areas will be harmonised through positive EU lawand more authority will be delegated to the Commission. With thatin mind, direct taxation of the future could well be mainlycontrolled by the EU, along with own resources for the EU andlimited discretion given to Member States.

This being said, tax measures must still be adopted unanimouslyby the Member States. In addition, the European Parliament has theright to be consulted on tax matters. It can take a long timebefore all the pending Commission proposals are adopted, if theyare adopted at all. We have seen with the Pillar Two Directive thatobtaining unanimity can be difficult, even if the directive followsrules established in an international context. Another example isthe Unshell proposal, which is moving forward in the Council of theEU rather slowly after quite rapid progress and encouragement bythe European Parliament.

It remains to be seen if and when all Member States can agree onthe Commission's ambitious agenda. Furthermore, it remains tobe seen whether the Commission is sufficiently equipped to governdirect taxation. In a rapidly changing world, directives may needto be updated and amended. Furthermore, in its legislative effortsthe Commission should be mindful of the interests of EU citizens;their fundamental rights need to be respected and they need to berepresented in decision-making. But the drive is there: directtaxation could significantly supplement the EU's budget (the'own resources' part) and contribute not only to higher EUinvestment capacity but also to servicing the EU common debt at alower cost for Member States.

One thing is certain: the developments around European directtaxation will be very interesting to follow!

Recent developments

It is recommended for MNEs active in the EU to closelymonitor further developments.

On 12 September 2023, the European Commission adopted a newpackage of initiatives to reduce tax compliance costs for large,cross border enterprises in the European Union. This packageconsists of:

1. aproposalfor a Council Directive onBusiness in Europe: Framework for Income Taxation ('BEFITDirective' or 'BEFIT proposal'); and
2. aproposalfor a Council Directive ontransfer pricing ('TP Directive' or 'TPproposal').

Other developments to keep an eye on include the Unshellproposal, the FASTER proposal, the EU Fit for 55 measures, ESGreporting obligations, state aid developments, progress on PillarOne, public Country by Country Reporting and the FrameworkArgeement on cross-border teleworking.

These developments will be discussed below. In addition, theCommission published a proposal for a Head-Office Tax system formicro, small, and medium-sized enterprises. For more information onthis proposal reference is made to our latestEU Tax Alert.

The adoption of the proposals for Council Directives in thefield of taxation requires the unanimous consent of all MemberStates.

The BEFIT proposal

One common corporate income tax framework within theEU?

On 12 September 2023, the European Commission proposed a CouncilDirective on 'Business in Europe: Framework for IncomeTaxation'. The BEFIT proposal contains a common corporateincome tax framework for groups active in the EU. At this stage, itis uncertain whether the BEFIT proposal will be implemented in itscurrent proposed form. If adopted within the timeframe envisaged bythe Commission, Member States must implement the BEFIT proposal by1 January 2028 and apply its provisions as of 1 July 2028.

The key elements of BEFIT are:

• Hybrid scope.A BEFIT group willgenerally be formed by a parent company and subsidiaries in whichit holds, directly or indirectly, at least 75% of the ownershiprights or profit rights. The BEFIT rules are mandatory for EUheadquartered groups with annual combined revenues exceeding EUR750 million (Pillar Two threshold). For groups with non-EUheadquarters, BEFIT is mandatory if the relevant EU part raiseseither at least EUR 50 million annual combined revenues in acertain reference period or accounts for at least 5% of the totalgroup revenue. Groups below these thresholds may opt in for BEFIT,for at least a five-year period, provided they prepare consolidatedfinancial statements.
• Tax base. For the computation of the tax baseof each group member, BEFIT uses as a starting point the financialaccounting net income or loss as stated in the consolidatedfinancial accounts. Adjustments need to be made for, among otherthings, profit distributions and non-deductible exceeding borrowingcosts under the ATAD earnings stripping rule. This will result in apreliminary tax base for each BEFIT group member.
• Aggregation and allocation.Thepreliminary tax results of all BEFIT group members are subsequentlyaggregated into a single pool to determine the BEFIT group taxbase. This aggregated group tax base is allocated to BEFIT groupmembers using a (seven-year) transitional allocation rule. Underthis rule, the allocation is based on each BEFIT group member'sweighted share in the aggregated tax base in the previous threefiscal years.
• Specific consequences.In principle, aBEFIT group member ceases to be subject to its national corporateincome tax law in respect of all matters covered by the BEFITrules. However, Member States may apply deductions, tax incentives,or base increases to their allocated parts.

Takeaways and tip

If adopted, BEFIT contains advantages such as cross-border lossrelief and no withholding tax on intra-BEFIT group interest androyalty payments. It would, however, also create new corporateincome tax rules that need to be dealt with. In addition, ourobservation is that MNEs can have both BEFIT filing obligations aswell as local corporate income tax filing obligations for entitiesthat do not meet the 75% ownership threshold. Therefore, it isrecommended for MNEs active in the EU to closely monitor furtherdevelopments.

The Transfer Pricing proposal

The Transfer Pricing proposal aims to harmonize TransferPricing principles across the EU.

On 12 September 2023, the European Commission released alegislative proposal for a Council Directive that integrates key TPprinciples into EU law ('TP proposal').

The TP proposal seeks to harmonise TP norms within the EUthrough the incorporation of the arm's length principle into EUlaw and the clarification of the role and status of the OECD TPGuidelines. To ensure a common application of the arm's lengthprinciple, the 2022 version of the OECD TP Guidelines will bebinding when applying the arm's length principle in the MemberStates. The TP proposal enables the European Commission to proposecommon binding rules and safe harbours to specific transactions. Ifadopted unanimously in the EU Council, Member States must apply theprovisions as of 1 January 2026.

Some highlights from the TP proposal:

• Associated enterprises.The TP proposaluses a broader term of 'associated enterprises' thancertain Member States and may therefore increase the number oftransactions that have to comply with the OECD TP Guidelines.
• Fast-track procedure. The TP proposal providesfor a fast-track procedure to resolve double taxation through acorresponding adjustment when there is no doubt that the primaryadjustment is well founded or if this results from a joint audit.Such a fast-track procedure must be concluded within 180 days,without the need to open a Mutual Agreement Procedure.
• Downward adjustments. Member States areallowed to perform a downward adjustment under certain conditions(e.g. an amount equal to the downward adjustment is to be includedin the profit of the associated enterprise in the otherjurisdiction and such downward adjustment is communicated to thetax authorities of the other jurisdiction).
• Most appropriate TP method. The TP proposalprescribes that the arm's length price is determined byapplying the most appropriate TP method out of the five TP methodsincluded in the OECD TP Guidelines.
• Use of the interquartile range. The arm'slength range must be determined using the interquartile range. If aresult falls outside the interquartile range, tax authorities mustmake an adjustment to the median. The rules seem to go beyond theOECD TP Guidelines and domestic legislation in many EU MemberStates where the use of the interquartile range is notimposed.
• TP documentation. The TP proposal requirestaxpayers to have sufficient TP documentation. These requirementswill be specified by the European Commission at a later moment andmay result in an additional compliance burden.
• Influence European Commission. The Commissionseems to strive for greater influence on future TP legislation, asthe TP proposal includes the possibility for the EU Council toadopt further rules on almost all kinds of intercompanytransactions.

Takeaways and tip

If adopted, MNEs active in the EU might be subject to stricterrules on transfer pricing and compliance. Further harmonization ofTP principles across the EU and the proposed fast-track proceduremay be beneficial for MNEs active in the EU in the long term.Therefore, it is recommended that MNEs active in the EU closelymonitor further developments.

The Unshell proposal: what to expect?

MNEs should continue monitoring furtherdevelopments and remain mindful of the Unshell proposalwhenassessingthelevel ofsubstance of existing or newly incorporated groupcompanies.

On 22 December 2021, the European Commission published aproposal for a directive laying down rules to prevent the misuse ofshell entities for improper tax purposes ('Unshellproposal'). This proposal intends to counter situations wheretaxpayers misuse EU entities that have no or minimal substance anddo not perform any actual economic activity, by introducingreporting obligations, information exchange and possibly denyingcertain tax benefits. To determine whether a company falls withinthe scope of the Unshell proposal and what the exact consequencesare, specific carve-outs, gateways and substance indicators must beassessed. For detailed information on the Unshell proposal, werefer to ourbrochureof May 2022.

Although no agreement could be reached to date, discussions arestill ongoing under the Spanish presidency, which runs from 1 July2023 through 31 December 2023. We understand from various sourcesthat a compromise on the current Unshell proposal, especially onthe substance indicators and the tax consequences, remainsdifficult. Given that Member States still differ on thesechallenging issues, a two-step approach suggested by the EUCouncil's Spanish presidency was discussed in October 2023.Under this approach, the Unshell proposal would boil down to a DAC9(i.e. an exchange of information if an undertaking is deemed ashell) and, as a second step, it would be determined whether taxconsequences should be included in the Unshell proposal. However,since certain Member States raised concerns on, for example, theadministrative burden that would remain, we have been informed thatthe Spanish presidency will likely not pursue with this two-stepapproach. Instead, the inclusion of the tax consequences wouldremain within one single proposal.

We understand from various sources that in November 2023 a newapproach was considered, whereby the substance requirements wouldconstitute a minimum standard. This would imply that Member Stateswould be allowed to add additional substance criteria for entitiesresident there. Entities that would fail to meet such additionalcriteria would also be presumed shell entities. Entities that wouldfail to meet the (additional) substance requirements, would notface tax consequences if they declare that they have not beenestablished for the purpose of obtaining a tax advantage andinclude supportive documentary evidence. Under this approach, thesubstance criteria would remain unchanged, i.e. the criteria inrelation to managing persons, premises, bank account, employees andboard meetings. We have been informed that the outsourcing criteriawas removed in this approach. We understand, however, that ameeting held on 23 November 2023 revealed that there is not muchsupport for this new approach either.

Next steps

On 17 October 2023, the European Commission adopted the 2024Work Programme in which it indicated that an agreement on theUnshell proposal is imperative. Giving the latest developments anagreement is not expected in the short term. The EuropeanCommission can withdraw the proposal if it feels that the proposalis watered down too much. Alternatively, the negotiations willlikely be passed on to the Belgian forthcoming presidency, whichruns from1 January 2024 through 30 June 2024.

Takeaways and tips

• It is important for MNEs to continue following the developmentsregarding the Unshell proposal and to be mindful of its potentialimpact.
• Having sufficient substance in place according to the Unshellproposal does not mean that a structure can no longer be challengedby tax authorities. Irrespective of the fact that the undertakingwould fulfil the (minimum) substance indicators laid down in theUnshell proposal, tax authorities could still challenge a structurebased on, for example, the tax residency of the undertaking,national anti-abuse provisions and/or the concept of beneficialownership.
• Considering the Unshell proposal and the high number of taxaudits on withholding taxes in many Member States, MNEs shouldassess their current substance and set up their business in a waythat is efficient from a business perspective and future-proof froma tax perspective.
• Loyens & Loeff has the tools to assess an MNE's levelof substance and the risks from an EU perspective and from a Dutch,Belgian, Luxembourg and Swiss tax perspective. Furthermore, we canmake clear and practical suggestions to improve the structure.

The FASTER proposal – harmonising withholding taxrelief across the EU

FASTER promises to bring a significant evolution to thewithholding tax relief process for cross-borderinvestments.

The European Commission's recent proposal for the Faster andSafer Relief of Excess Withholding Taxes ('FASTER')Directive introduces a unified framework for withholding tax('WHT') relief procedures for dividends and interest onpublicly traded instruments. Its core objectives are making reliefprocesses faster and more efficient and preventing tax fraud andabuse. The expectation is that, once unanimously adopted by theMember States, the rules of the FASTER proposal will apply as of 1January 2027.

Key measures of the FASTER proposal

The FASTER proposal consists of four components:

1. Quick reliefsystems.Member States are requiredto introduce either or both of the following systems to expediteWHT relief:
   • a relief at source system resulting in withholding the correctamount of WHT;
   • a quick refund system resulting in the refund of excess WHTwithin fifty calendar days.
2. National registers for Certified FinancialIntermediaries('CFIs').Large institutionsand central securities depositaries, which facilitate WHT reliefprocedures, will be included in national registers as CFIs. Otherentities can register voluntarily.
3. Standardised Reporting Obligations.CFIswill report essential information to competent authorities toidentify investors, the entitlement to reduced WHT rates andpotentially abusive WHT schemes. It is intended to provide taxauthorities with visibility of the financial chain andinvestor's reclaim eligibility.
4. Common EU Digital Tax Residence Certificate('eTRC').The eTRC willfacilitate the confirmation of investors' tax residency withinthe EU and improve the administrative process.

The role of CFIs

CFIs play a pivotal role in FASTER. They will have to implementdue diligence procedures to assess investors' reclaimeligibility, including collecting and verifying beneficialownership declarations and tax residence declarations.

Anti-abuse measures

The FASTER proposal incorporates anti-abuse measures,particularly aimed at preventing WHT fraud and abuse, includingCum/Ex and Cum/Cum schemes. These measures cover distributions onpublicly traded instruments that change ownership shortly beforethe ex-dividend date or that are linked to financialarrangements.

Takeaway and tip

• FASTER imposes new and demanding compliance obligations onfinancial intermediaries and asset-servicing organisations such ascustodian banks. Institutions that are included in the nationalregisters on a mandatory basis should monitor developments andprepare their compliance strategy.
• Investors should prepare to take advantage of FASTER'spromise to make WHT relief processes faster and moreefficient.

EU Fit for 55 measures – State ofplay

The Fit for 55 measures will significantly change EUenvironmental, energy, transport and financial legislation, inorder to turn climate goals into hard law.

The Fit for 55 package ('Ff55') is a set of legislativeproposals and amendments to existing EU legislation to reducegreenhouse gas ('GHG') emissions and reach climateneutrality. The ambition is to cut European GHG emissions by atleast 55% by 2030 compared to 1990, and become climate-neutral by2050. These goals are binding for the EU and its Member States. Keymeasures relevant for the coming years are:

1. Reform of the EU Emissions TradingSystem. The EU Emissions Trading System ('EUETS') entails a scheme for GHG emission allowance trading andpromotes a reduction of GHG emissions in the EU. The proposedamendments to the EU ETS primarily involve reducing the amount ofemission allowances available. The EU ETS will be phased in for themaritime sector between 2024 and 2026, and free emission rights forthe aviation sector will be phased out. Emission allowance tradingfor the construction and road transport sectors will be introducedthrough a separate system as of 2027.
2. Implementation of the Carbon Border AdjustmentMechanism. The Carbon Border Adjustment Mechanism('CBAM') puts a carbon price on imports of certain goodsfrom outside the EU, as an alternative to the currently existingfree allowances under the EU ETS and other indirect emission costs.The CBAM was formally adopted by the EU Council in 2023 and issimilar to the system of allowances under the EU ETS, in whichimporters have to surrender CBAM certificates. These certificatesare based on the embedded emission intensity of the productsimported into the EU and are to be purchased at a pricecorresponding to that of the EU ETS allowances. Until the end of2025, the CBAM only entails a reporting obligation After that date,it will be gradually phased in as an ETS-equivalent system.
3. Revision of the EU Energy Tax Directive.The EUEnergy Tax Directive ('ETD') contains minimum excise dutyrates for the taxation of electricity, as well as energy productssuch as motor fuel and heating fuel. The current ETD does not,however, reflect the EU's (renewed) climate policy andambitions. The proposed amendments introduce a new structure of taxrates based on energy content and environmental performance of thefuels and electricity. Furthermore, the proposal broadens thetaxable base by including more products in its scope and byremoving some of the current exemptions and reductions. Therevision of the ETD is currently being negotiated within theinstitutions of the EU and the entry into force will depend onthese negotiations.

Takeaways and tips

• The Ff55 package shows that carbon pricing and energy taxeswill play a greater role in the EU's response to climatechange. Amendments to the EU ETS may, for example, affect pollutersin the industrial, energy, and transport sectors.
• The road transport and construction sectors will be subject toemissions trading and MNEs producing outside the EU may have tocomply with the CBAM. Changes to the minimum ETD rates for fuelsand electricity may, moreover, increase tax obligations in certainsectors.
• The proposed measures may affect the business of MNEs in thenear future. We therefore recommend that MNEs evaluate theirposition in relation to carbon pricing and energy taxes in a timelymanner.

Tax governance in the context of tax and ESG reportingobligations

The implementation of the Corporate Sustainability ReportingDirective will require additional disclosure in the managementreport section of financial statements and the implementation ofthe EU directive on public Country-by-Country Reporting requires aseparately published report. This will inevitably increase theimportance of providing an explanation on tax governance, as thesenew regulations will demand greater transparency and accountabilityfrom corporations.

Tax reporting

The EU Directive 2021/2101 requires large multinationalcorporations to publicly disclose reports on corporate income taxpaid per country. This public Country-by-Country Reporting('Public CbC Reporting') tax report will become a newmandatory and essential component of corporate communication andreporting to internal and external stakeholders. The aim is toprovide comparable and transparent information to all stakeholdersabout the tax policy pursued, its impact, and relatedresponsibilities or risks. The Public CbC Reporting informationmust be provided by multinational groups, including unlisted ones,that meet a consolidated revenue threshold of €750 million andwill apply to financial years starting on or after 22 June 2024.More details regarding Public CbC Reporting can be found above.

ESG reporting

The Corporate Sustainability Reporting Directive('CSRD') is a new EU directive that will come into force asof the 2024 fiscal year for the largest, listed companies.Thereafter, the scope will be extended to smaller listed entitiesand large companies. The CSRD encompasses sustainability in a broadsense and includes disclosure requirements for a wide range ofenvironmental, social, and governance ('ESG') aspectsaccording to the European Sustainability Reporting Standards.Reporting about tax governance may be an important part of ESGreporting.

Takeaway

The reporting of non-financial information will become asimportant in the EU as traditional financial reporting and shouldbe of the same quality. Not only will these new regulations beentering into force soon, but their requirements are alsocomprehensive and specific. A comprehensive understanding andeffective communication of tax governance strategies will becomeincreasingly crucial.

State aid – developments for tax and transferpricing

Status update

The year 2023 has seen further progress in the judicial reviewof landmark cases concerning tax rulings dealing notably withtransfer pricing matters. The Fiat judgment of the Court of Justiceof the European Union ('CJEU') published in November 2022has been invoked by taxpayers, Member States and Advocate GeneralKokott in other cases, notably ENGIE (Luxembourg), Amazon(Luxembourg) and Apple (Ireland). The opinion of the AdvocateGeneral in the Apple case was released on 9 November 2023. The CJEUjudgment in the ENGIE and Amazon cases are due to be released on 5and 14 December 2023 respectively. At lower-tier judicial level,the EU General Court handed down its second judgment dealing withBelgian excess profit rulings, this time finding they constitutedunlawful aid. The ongoing investigations of the European Commissionin other individual tax rulings in various countries remainopen.

Relevant reference framework

The Fiat judgment gave clear guidance on the definition of thereference framework: only national law can form part of thereference framework. Well-substantiated and consistentadministrative practice applying national law should also be takeninto account. This judgment raised doubts whether the OECD transferpricing guidelines may form part of the reference framework whennot explicitly implemented in national law.

In her opinion in the Amazon case, Advocate General Kokottconcluded that the European Commission had applied a wrongreference framework by disregarding the implementation of thearm's length principle in Luxembourg and instead applying anexternal standard based, inter alia, on postdating OECD guidelines.The Advocate General even questioned the relevance of theseguidelines.

In his opinion in the Apple case, Advocate General Pitruzzellatakes the view the Commission applied the correct referenceframework but then appears to rely (at least partly) on postdatingOECD guidelines for purposes of interpreting the Irish legalprovision. Advocate General Pitruzzella also appears to review indepth the functional analysis and various methodologicalconsiderations, taking the view that these do not constitute(non-appealable) matters of facts.

Abuse of law review under State aid rules

In her opinion in the ENGIE case, Advocate General Kokottconcluded that the Commission misapplied Luxembourg tax law byintroducing requirements for the participation exemption ordeduction of expenses that were not laid down in law. As to thesubsidiary line of reasoning dealing with the non-application ofthe general anti-abuse rule, she found that Member States shouldretain a certain margin of flexibility in this matter based ontheir fiscal sovereignty, and that the Commission shouldaccordingly only be entitled to challenge a manifest misapplicationof the anti-abuse rules.

Pillar One: Amounts A and B

The envisaged implementation dates for Amount A, Amount Band the extension of the Digital Service Taxes freeze seemunfeasible.

Overview

Pillar One's Amount A seeks to create a new taxing right formarket jurisdictions, which will be independent of the physicalpresence requirement and determined using a formulaicapproach.
In addition, Pillar One's Amount B aims to introducesimplifications to the transfer pricing approach to what are knownas baseline marketing and distribution activities ('BMDA').Furthermore, Pillar One includes mandatory and binding disputeprevention and resolution mechanisms to mitigate the risk ofmultiple taxation. In parallel with the multilateral negotiationson Pillar One, many countries around the globe continue to imposeand/or propose unilateral measures to tax digital businesses. Thesemeasures show various countries' dissatisfaction with PillarOne and/or their scepticism about its potential success. Ingeneral, unilateral measures consist of Digital Service Taxes('DSTs'), equalisation levies or new nexus-based levies incases where there is a significant economic presence ofnon-resident businesses in market jurisdictions.

Amount A

Following the historicOutcome Statementagreed on 11 July 2023by 138 members of the Inclusive Framework ('IF'), on 11October 2023 theMultilateral Convention ('MLC') package toimplement Amount Awas released. The package consists ofthetext of the MLC, anExplanatory Statement('ES') andan Understanding on the Application of Certainty ('UAC').This reflects the consensus achieved so far among IF members on thetechnical architecture of Amount A with some reservations fromcertain jurisdictions. In turn, the ES clarifies the provisions ofthe MLC and the UAC contains further details on how aspects of theAmount A tax certainty framework will operate in practice. For moreinformation and an overview of the main features of Amount A,please see our recentwebsite post.

Although having come close to a final agreement, the MLC is notopen for signature yet because a number of countries, such asIndia, Colombia and Brazil, have included reservations on someprovisions of the MLC text released on 11 October 2023, which areexpressed in footnotes and mainly refer to the marketing anddistribution safe harbour, including the treatment of withholdingtaxes. In essence, these countries fear that they may be allocatedtoo few additional taxing rights by applying this safe harbour.

Furthermore, it should be noted that, in July 2023, the majorityof the IF members agreed to extend a freeze on new DSTs and similarmeasures for one year beyond its December 2023 expiration date oruntil the MLC's entry into force. However, this extensionrequires the critical mass of jurisdictions (i.e. 30 jurisdictions,accounting for at least 60% of the ultimate parent entities ofin-scope MNEs) to sign the MLC before the end of 2023. If suchcritical mass, which necessarily requires the United States('US') to be on board considering its allocated points, isnot reached by 31 December 2023, then the DST freeze willexpire.

Amount B

In addition to the work on Amount A, during 2023 the IF has alsomade significant progress on Amount B. On 17 July 2023, the OECDreleased the latestpublic consultation documenton Amount Bwhich followed a previous consultation launched in December 2022 onthis same subject. Loyens & Loeff submittednew input to the latestconsultationwhich provides further comments andsuggestions in relation to enhancing tax certainty and reducingresource-intensive disputes between taxpayers and taxadministrations, while trying to avoid artificial situations.

Next steps

According to the OECD, the MLC to implement Amount A will besigned by the end of 2023 with the aim of enabling its entry intoforce in 2025. If signature, not ratification, by the requiredcritical mass of jurisdictions is achieved by the end of 2023, theDST freeze will be extended until 31 December 2024 or the entryinto force of the MLC, whichever is earlier. Otherwise, the freezewill expire and unilateral measures, including DSTs, equalisationlevies, expanded withholding taxes on digital services,non-traditional nexus-based levies and suchlike mightproliferate.

As indicated above, several countries, including the US, haveindicated that they need additional time for internal processesbefore they can decide whether or not they can sign the MLC. Recentdeclarations by the US Treasury Secretary and theUSpublic consultationon this matter running until 11December 2023 confirm that, at least for the US, such process willrun into 2024. Since the US alone accounts for 48.6% of affectedMNEs and 486 points out of the 600 required for the MLC to enterinto force, the fate of Amount A and the DST freeze is in theUS' hands. It remains to be seen whether or not the agreementsdirectly entered into by the US with several countries about thetreatment of existing DSTs, which also expire on 1 January 2024,will be extended.

Regarding Amount B, the IF is now considering the feedbackreceived to further develop the framework for the simplified andstreamlined application of the arm's length principle to BMDA.The work on Amount B should be completed by the IF by the end of2023 and the final report on this element is expected to beincorporated into the OECD's Transfer Pricing Guidelines byJanuary 2024. It should however be noted that the developmentsregarding the MLC may have consequences for Amount B, since anumber of countries see the implementation of Amount A and Amount Bas part of the same agreement.

Takeaways and tips

• As of October 2023, the envisaged implementation dates forAmount A and the extension of the DST freeze seem unfeasible. Thismeans that, unless further agreements are made, countries couldintroduce a DST or other unilateral measures as of 1 January2024
• If Pillar One fails, countries might follow the example of theUnited Kingdom, Austria, France, Italy, Spain, India, Tunisia,Turkey, Kenia and, more recently, Canada and New Zealand of eitheradopting or proposing unilateral measures to tax MNEs in thedigital sector in the form of either DSTs or similar measures.Furthermore, it cannot be ruled out that, following the previous2018 attempt, a multilateral DST will again be proposed at EUlevel.
• In any case, MNEs will need to assess the potential impact ofPillar One and other unilateral measures and take them into accountwhen reassessing their tax positions. Loyens & Loeff can assistin preparing a Pillar One impact assessment model to facilitatesuch assessment.
• Taxpayers can already assess whether the proposed Amount Brules simplify and streamline the pricing of their BMDA. Our PillarOne and Transfer Pricing teams are available to give support inanalysing and modelling the impact of these rules on a group andexploring ways to mitigate increased taxation and complexity.

Public CbC Reporting

On 21 December 2021, the amendment to Directive 2013/34/EUintroducing public Country-by-Country Reporting ('Public CbCReporting') obligations in the EU entered into force.

Based on the amended directive, certain MNEs that are active inthe EU with consolidated annual revenues exceeding EUR 750 millionwill have to publish the amount of tax they pay in each individualEU Member State and, on aggregate, outside the EU ('Public CbCReport'). The data provided by companies needs to be brokendown into specific items. These items include the nature of thecompany's activities, the number of full-time employees, theamount of profit or loss before income tax, the amount ofaccumulated and paid income tax and accumulated earnings. ThePublic CbC Report must be published on the internet, using a commontemplate.

The Public CbC Reporting obligations apply to (i) EUheadquartered MNEs and (ii) non-EU headquartered MNEs that havemedium- or large sized subsidiaries or branches in the EU. Based onthe updated version of the directive, which is effective as of 1January 2024, to qualify as a medium- or large sized subsidiary orbranch, two of the following three (accounting) criteria must bemet:

1. a balance sheet exceeding EUR 5 million;
2. a net turnover exceeding EUR 10 million; and
3. an average number of employees exceeding 50.

These criteria may differ slightly between EU jurisdictions,depending on their national implementation. The directive isgenerally implemented by EU jurisdictions in a way that requiresMNEs to publish their first Public CbC Report for reporting yearsstarting on or after 22 June 2024 (such as in the Netherlands andLuxembourg). However, based on public information, Romanian lawalready requires certain undertakings to publish a Public CbCReport for reporting years starting on or after 1 January 2023.

Tip

We recommend verifying in which EU jurisdictions your MNE groupis active and what the local deadlines are. Loyens & Loeff canassist you in determining the best approach towards meeting thePublic CbC Reporting obligations.

Framework Agreement on cross-borderteleworking

Since the COVID-19 pandemic, international teleworking hasbecome an important topic for employers and employees. As of 1 July2023, new rules apply to employees teleworking from home incross-border situations within certain European countries('cross-border teleworking'). If employees telework lessthan 50% of their agreed-upon working time in their state ofresidence, the social security legislation of the state in whichthe employer has its place of business or registered office mayremain applicable. The new rules are laid down in a FrameworkAgreement, which applies to the EU Member States that have signedthe Framework Agreement, as well as to Liechtenstein, Norway andSwitzerland. The expanded possibility does not apply in relation tocountries that have not signed the Framework Agreement. Belgium,Luxembourg, the Netherlands and Switzerland have signed thisFramework Agreement. For more information, including a link to thelist of countries that have signed the Framework Agreement, werefer to ournewsletter.

The Netherlands – Domestic developments

General developments in the tax landscape

Tax plans 2024

Minimum taxation

On 26 October 2023, the Dutch Second Chamber of Parliament alsoadopted the Minimum Tax Act 2024 (Wet Minimumbelasting2024) proposed earlier, implementing the Pillar Two Directivein Dutch law. Analysing the impact of the Pillar Two rules for MNEswas one of the main tax challenges in 2023 and will continue to beso in 2024. More details on the Dutch implementation of the PillarTwo rules can be found below.

Amendments to the Tax Plans 2024

Moreover, during the parliamentary proceedings on the recentlyadopted Tax Plans 2024, Dutch parliament proposed variousamendments, some of which were adopted on 26 October 2023. Some ofthe tax consequences following from these amendments are discussedbelow.

Increase in Dutch personal income tax rate and scaling back of30%-ruling

The changes following from the amendments in the parliamentaryprocess partly relate to an increase of the Dutch personal incometax rates and the further scaling back of the 30%-ruling forforeign employees with specific expertise by decreasing the maximumtax-free allowance from 30% to 20% after the first 20 months of theterm and from 20% to 10% after the next 20 months and by abolishingthe option to opt for the partial foreign taxpayer status. Thesechanges will be addressed below.

Abolition of the tax-free repurchase facility for listedcompanies

As far as listed companies are concerned, the adoption of theamendments will, amongst other things, lead to the abolition of thetax-free repurchase facility for listed companies as of 1 January2025. Under this facility listed companies currently can, albeitunder certain conditions, repurchase shares without the obligationto withhold Dutch dividend tax. The abolition of this facilitymeans that share buyback programmes of listed companies in theNetherlands will in general become subject to Dutch dividendwithholding tax as of 1 January 2025. Such Dutch dividendwithholding tax would be due and payable by the listed company,because the company cannot withhold this tax in case oftransactions on the stock exchange. Thus, the repurchase price isthe after tax profit distribution. This means that the profitdistribution amount must be grossed up when calculating thedividend withholding tax due. This results in an effective taxburden of approximately 17.65% of the repurchase price.

For the year 2024, listed companies can still make use of thefacility. It remains to be seen if and to what extent abolishingthis facility will influence share buyback programmes of listedcompanies and whether the revenues budgeted by parliament willindeed be realised.

Observations and entry into force

The Dutch parliament made quite a number of changes to theoriginal proposed Tax Plans 2024, which can be seen in light of theelections in November 2023. The First Chamber of Parliament willhave to vote on the Tax Plans 2024 and the Minimum Tax Act 2024 on19 December 2023. If adopted, the new laws will enter into force on1 January 2024 or on 1 January 2025.

Update Pillar Two

We expect the Minimum Tax Act to be enacted before year-endand apply to financial years starting on or after 31 December2023.

The Netherlands is on schedule to implement its domestic PillarTwo legislation before the end of 2023, where the Income InclusionRule ('IIR') and Qualified Domestic Top-up Tax('QDMTT') will be effective from 31 December 2023 and theUndertaxed Profits Rule ('UTPR'), in most cases, from 31December 2024. The legislative proposal for the Minimum Tax Act(Wet Minimumbelasting) was published on 31 May 2023 andsince then the parliamentary proceedings are progressing. Oursummary published earlier on this proposal can be foundhere.

The Minimum Tax Act mentions that the OECD Model Rules andrelated Commentary of 11 March 2022 and the OECD AdministrativeGuidance of 1 February 2023 can serve as interpretation of theMinimum Tax Act to the extent that the Act aligns with the OECDModel Rules. The Netherlands chooses to introduce the QDMTT SafeHarbour and the UTPR Safe Harbour in line with the OECDAdministrative Guidance released on 17 July 2023.

The proposal introduces compliance obligations which compriseinformation returns and IIR, UTPR and QDMTT returns. Whereas theinformation return follows the OECD concept of a Global Anti-BaseErosion ('GloBE') information return, the IIR, UTPR andQDMTT return should be filed if any of these taxes become due inthe Netherlands. All in-scope entities will, to some extent, havesome degree of Pillar Two-related compliance.

The Minimum Tax Act was adopted by the Second Chamber ofParliament on 26 October 2023. This Act will be voted on in theFirst Chamber of Parliament on 19 December 2023 and willsubsequently be enacted once it has been published in the OfficialGazette. We expect the Minimum Tax Act to be enacted beforeyear-end and apply to financial years starting on or after 31December 2023.

Tip

Our Pillar Two team can assist with the:

1. Country by Country Reporting ('CbC Reporting') SafeHarbour analysis;
2. Pillar Two analysis for disclosure in 2023 financialstatements;
3. Pillar Two in M&A transactions; and
4. Pillar Two analyses and restructurings.

Update Public CbC Reporting

The Dutch Second Chamber of Parliament passed legislation toimplement public Country-by-Country Reporting on 6 July 2023.In-scope MNEs are required to publicly disclose aCountry-by-Country Report including tax and tax-related informationfor reporting years starting on or after 22 June 2024.

Entity classification rules

As part of the Budget Day 2023 tax plans, it has been proposedto overhaul the Dutch entity classification rules as of 1 January2025 in order to bring them more in line with internationalstandards.

Partnerships

The Dutch non-transparent limited partnership ('CV') andother types of non-transparent Dutch partnerships cease to exist,making all partnerships transparent for Dutch tax purposes.

Funds for joint account

Foreign entities

The Netherlands currently applies the 'similarityapproach' to classify foreign entities. Under the currentproposal, the similarity approach remains in force as the primaryclassification rule. For certain situations where the similarityapproach does not provide a solution, there will be two newrules:

• For foreign entities based outside the Netherlands with noclear Dutch equivalent, the Netherlands will follow the taxclassification of the home state of the foreign entity (thesymmetric approach).
• Foreign entities with no clear Dutch equivalent based in theNetherlands will always be classified as a non-transparent entityfor Dutch tax purposes (the fixed approach).

Transitional rules

A shift from a non-transparent classification to a transparentclassification for Dutch tax purposes could result in tax becomingdue at the level of the partnership or FGR and/or at the level ofthe partners or participants without cash being generated.Therefore, several facilities are proposed to apply as of 1 January2024:

1. a roll-over facility;
2. a share-for-share merger facility (including a real estatetransfer tax ('RETT') exemption); or
3. a deferred payment obligation, spread out over ten years.

Tip

Attention should be paid to existing structures asrestructurings may be necessary before 1 January 2025, becauserestructurings using the above-mentioned facilities should becarried out during the year 2024.

Conditional withholding tax on dividends per2024

Profit distributions to entities in low-tax jurisdictionswill be in-scope of this conditional withholding tax.

On 1 January 2024, legislation will enter into effect pursuantto which the scope of the existing Dutch conditional withholdingtax on intragroup interest and royalty payments ('CWT')will be expanded to also include profit distributions by capitalcompanies, such as the private limited liability company('BV') and public liability company ('NV'), butalso by all cooperatives, including 'non-holding'cooperatives.

Profit distributions to entities in low-tax jurisdictions, beingjurisdictions with a less than 9% statutory profit tax rate, and/orEU-blacklisted jurisdictions ('LTJs') will be in-scope ofthis CWT. Additionally, profit distributions to certain non-LTJhybrid entities and reverse hybrid entities are covered, as well aspayments in 'abusive situations'. An example of an abusivesituation is where the recipient is directly or indirectly held byan entity in an LTJ and the principal purpose of the interpositionof the recipient is to secure a more favourable CWT position.

If due, CWT will be levied at the headline corporate income taxrate, i.e. 25.8% in 2024. The existing non-conditional 15% Dutchdividend withholding tax ('DWT') will continue to apply,although any DWT levied will be creditable against the CWT.

The CWT, deliberately, does not assign any value to substance inthe Netherlands at the level of the distributing Dutch entity or inthe LTJ at the level of the direct or indirect recipient.

Takeaways and tips

• The CWT will only apply to profit distributions made to groupcompanies with a controlling interest in the distributing Dutchentity which exists, in general, in case of more than 50% of votingrights.
• Where it involves Dutch cooperatives, the new CWT has a broaderscope than the DWT as under current rules only distributions byholding cooperatives are subject to CWT.
• With regard to profit distributions made to hybrid entities andreverse hybrid entities, it is noted that the number ofclassification mismatches and, thus, the number of hybrid entitiesfor purposes of CWT should generally be reduced due to the proposedchanges to the Dutch entity tax classification rules as of 1January 2025 as set out above. In relation to limited partnershipsequivalent to Dutch limited partnerships ('CVs'), theserules are proposed to be applicable already as of 1 January 2024but only for CWT on dividends, implying that these entities will beconsidered tax-transparent for this purpose as of thatdate.
• MNEs should verify whether the CWT may apply and determinewhether any restructuring will be required before 1 January2024.

Dividend withholding tax – anti-abuse rule caselaw

On 2 June 2022, the Amsterdam Court of Appeal ruled in two caseson the application of the domestic exemption from dividendwithholding tax ('DWT Exemption') for profit distributionsmade by Dutch resident entities to Belgian family holding companiesthat did not have any influence in the day-to-day management of theDutch entities. These rulings particularly address the anti-abusetest as included in the DWT Exemption and the Court decided thatthe structures were abusive and the DWT Exemption does notapply.

On 28 July 2023, the Advocate General issued his opinion to theDutch Supreme Court. Although the Advocate General followed thestrict interpretation of the Court of Appeal on the application ofthe anti-abuse test in the pending cases, he suggested applying theDWT Exemption in line with EU law and case law, where abuse cannotbe considered present solely on the basis that the structure leadsto a more favourable dividend withholding tax position.

The Supreme Court judgments in these cases are expected in theyear 2024.

Tip

It continues to be important to assess on a case-by-case basiswhether the DWT Exemption can be invoked in case of profitdistributions by Dutch resident entities.

Cancellation of the RETT concurrence exemption forcertain share deals

RETT exemption no longer applicable to share transactions withrespect to real estate companies that own building land and newlyconstructed real estate used (in part) for VAT-exemptpurposes

For envisaged share transactions with respect to shares in areal estate company that owns building land and newly constructedreal estate used (in part) for VAT-exempt purposes, it is advisablethat such share transactions take place before 1 January 2025.

Currently, newly constructed properties can be acquired withoutVAT or real estate transfer tax ('RETT') if the shares inthe real estate company are acquired.

The government wants to resolve the difference in taxationbetweenasset deals andsharedeals by levying RETT on certain share transactions. Tothis end, the government proposes to abolish the RETT exemption forshare transactions of real estate companies that own building landand newly constructed real estate, where more than 10% is used forVAT-exempt purposes. To avoid overkill, a new RETT rate of 4% is tobe introduced for the acquisition of shares in real estatecompanies that can no longer benefit from the RETT exemption. Werefer to ournews flashfor more information on thisproposal.

The RETT exemption will not be abolished for share transactionsin companies holding new real estate used for activities where atleast 90% of the VAT is recoverable in the two years following theacquisition. Therefore, in most cases share transactions involvingnewly constructed logistics, office and retail properties shouldstill qualify for the RETT exemption.

Shares already acquired in an ongoing development project wherethe company owns building land or newly constructed property?

Transitional rules will be introduced for ongoing developmentprojects. This means that an acquirer is eligible for the RETTexemption (i) if a letter of intent was signed with the intendedacquirer before 19 September 2023 at 3:15 p.m., and (ii) providedthat the acquisition of the shares takes place no later than 1January 2030. To apply the transitional rules, acquirers must filea notification with the Dutch tax authorities between 1 January2024 and 31 March 2024.

Employment taxes

30%-ruling

As from 1 January 2024, the cap on the maximum tax-freeallowance that can be paid under the 30%-ruling (i.e. the Dutch taxregime for foreign employees with specific expertise), as alreadyadopted in the Tax Plans 2023, will enter into force. As part ofthe Tax Plans 2024, in addition to the cap on the maximum tax-freeallowance the Second Chamber of Parliamentadopted twoadditional amendments to further scale back the 30%-ruling. First,this regards (i) the gradual scaling back of the tax-free allowancefrom 30% to 10% throughout the duration of the 30%-ruling. Second,the possibility to elect to be treated as a so-called partialnon-resident taxpayer will be abolished. For more information werefer to ournewsletter.

Adjustment pension system

On 1 July 2023, the new Pensions Act (Wet toekomstpensioenen) entered into force and by 1 January 2028, thetransition to the new pension system will have to be completed.Although the due date of 1 January 2028 still seems far away, inpractice employers, pension funds, insurers and asset managers arerecommended to initiate the work on the implementation rathersooner than later, as in many situations the impact and workloadwill be substantial. For more information we refer to ournewsletter.

End of enforcement suspension for self-employedindividuals

Due to the unclarities in respect of the tax treatment ofself-employed individuals, the Dutch tax authorities apply anenforcement suspension (handhavingsmoratorium) withrespect to the classification of self-employed individuals asindependent or employed for wage tax purposes. This enforcementsuspension will be abolished as of 1 January 2025. As a result ofthis abolishment, supervision and enforcement will be strengthenedto resolve the current ambiguity regarding the distinction betweenself-employed individuals and employees. For more information werefer to ournewsletter.

Exemption method for executive and supervisory boardremuneration

As of 1 January 2023, the approval to avoid international doubletaxation on executive and supervisory board remuneration by usingthe exemption method instead of the credit method expired. It istherefore important to take this change into account when filingthe 2023 tax return. For more information we refer toour last year's tax trends and developmentsbrochure for MNEs.

Cross-border teleworking and social security

As mentioned above, the Framework Agreement applies to EU MemberStates that have signed the agreement, as well as to Norway,Switzerland and Liechtenstein. Under the Framework Agreement, theemployer and the employee can opt in for continuation of the socialsecurity legislation of the state of the employer's registeredoffice or place of business whilst the employee is cross-borderteleworking from home for less than 50% of the time. TheNetherlands, Belgium and Germany have signed the FrameworkAgreement, as a result of which these new rules can be applied incross-border teleworking situations between the Netherlands and,inter alia, Belgium and Germany. For more information we refer toournewsletter.

Furthermore, the Dutch government focuses on two tax measures tofacilitate working from home in cross-border situations. First, thegovernment wants to include a working from home measure inbilateral tax treaties. Second, the government wants to providemore reassurance regarding the non-existence of a permanentestablishment of the employer in the employee's country ofresidence, due to working from home in cross-border situations.

Belgium – Domestic developments

General developments in the tax landscape

In March 2023, the Belgian Minister of Finance published hisproposal for a broad tax reform aiming more generally atmodernising and simplifying the tax system and making the systemmore equitable. Items of the reform that are relevant for MNEsincluded, for example, changes to the participation exemptionregime, the innovation income deduction, the investment deductionregime, the partial wage withholding tax exemption for research& development, the use of the stock option plans and the taxregime of carried interest.

After several months, it appeared difficult to reach politicalagreement on the various aspects of the tax reform. In July 2023,the Prime Minister announced that negotiations on the tax reformhad failed as no consensus could be reached. Although no majorreform could be agreed upon, some tax measures have been announcedin October 2023 as part of the budget agreement. These areelaborated on in one of the following paragraphs. Apart from thesemeasures, no major tax reforms are expected anymore in thislegislature in view of the upcoming elections in 2024.

Update Pillar Two

In-scope MNEs should closely follow up on the implementationof Pillar Two rules in Belgium and monitor the impact on certaintax incentives that are currently being applied.

On 13 November 2023, a draft bill implementing Pillar Two wassubmitted to parliament in line with the EU directive of 14December 2022 ensuring a global minimum tax ('theDirective'). The draft bill contains an Income Inclusion Ruleand Qualified Domestic Minimum Top-up Tax for fiscal years startingon or after 31 December 2023, and an Undertaxed Profits Rule forfiscal years starting on or after 31 December 2024.

The draft bill largely follows the Directive to ensure aconsistent implementation among Member States.For moreinformation on the highlights of the draft bill we refer toourtax flashof 16 November 2023

Takeaways and tips

• The entry into force of the Pillar Two rules is rapidlyapproaching and MNEs must get ready for this new reality. It isexpected that the draft bill will be published before year-end,thereby safeguarding a timely transposition of the Directive.In-scope MNEs should therefore closely monitor the impact of thePillar Two rules in Belgium on, for example, certain tax incentivesthat are currently being applied.
• Our Pillar Two team can assist with the:
  
  1. Country by Country Reporting ('CbC Reporting') SafeHarbour analysis;
  2. Pillar Two analysis for disclosure in 2023 financialstatements;
  3. Pillar Two in M&A transactions; and
  4. Pillar Two analyses and restructurings.

Update Public CbC Reporting

The Belgian government adopted a draft proposal on the PublicCountry-by-Country Reporting Directive on 13 October 2023, whichconsiders the comments of the Council of State. It is expected thatthe draft proposal will soon be submitted to parliament.

Tax considerations regarding the MobilityDirective

The Belgian Mobility Law introduced, among other things andsubject to certain conditions to be fulfilled, the following newtypes of reorganisations or new features:

• A cross-border demerger in which the demerged company transferspart of its assets and liabilities to one or more recipientcompanies. In exchange, the demerged company itself, not theshareholders of the demerged company, receives shares in therecipient company or demerger companies.
• A merger between sister companies in which the acquired companyor companies transfer all their assets and liabilities to anothercompany, with the acquired company or companies being dissolvedwithout going into liquidation and without the acquiring companyissuing any new shares.
• In case of a partial demerger it also becomes possible to issueshares of the partially demerged company and no longer only of theacquiring company. A combination of both is also possible.

Although the Belgian Mobility Law and the Mobility Directiveintend to facilitate reorganisations, adverse tax consequences maystill hamper these reorganisations. The Belgian Income Tax Code hasnot yet been adjusted to these new types of reorganisations.However, a draft bill has recently been submitted to parliament toensure that these reorganisations can also occur in a tax-neutralmanner.

In case of cross-border reorganisations, the Belgian MobilityLaw has also significantly reinforced the gatekeeper functionassigned to Belgian notaries. The documents that need to beprovided to and verified by the Belgian notary have, among otherthings, been expanded. In this respect, companies will also berequired to submit a tax and social security certificate to thenotary showing the outstanding tax liabilities and social securitycontributions. This requirement will in principle enter into forceon 15 December 2023.

Takeaways and tips

If an MNE plans a certain type of reorganisation, dueconsideration should be given to the tax consequences associatedwith such reorganisation and to the impact of procedural aspects ontiming.

Tax impact of the new Insolvency Law

MNEs should not overlook the tax consequences of insolvencyprocedures offered to companies in distress.

On 1 September 2023, the reformed Belgian Restructuring Lawentered into force. The law implements the EU Insolvency Directive2019/1023 and aims to offer companies in distress a wider array oftailer-made restructuring tools.

In order not to jeopardise the chances of success of arestructuring procedure, the Belgian Income Tax Code explicitlyforesees with respect to certain restructuring procedures that (i)the profit realised by the debtor upon a partial or full debtwaiver is treated as tax-exempt, and (ii) any impairment on areceivable that is accounted for by the creditor is treated as taxdeductible, even if the loss is not yet certain. Although thesespecific tax provisions have not yet been aligned with the newprocedures introduced by the Belgian Restructuring Law, a draftbill has recently been submitted to parliament to address this gap.The draft bill also provides specific rules to ensure that theexemption at the level of the debtor will be temporary in nature.Due to some potential remaining differences and specifics, itremains imperative to always monitor carefully the tax consequencesassociated with each restructuring procedure that would beconsidered.

Takeaways and tips

• Although the Belgian Restructuring Law offers morerestructuring options for companies in distress, adverse taxconsequences might hamper the chances of success. The draft billwhich intends to align the tax provisions with these newrestructuring options is therefore a positive development.
• It remains nonetheless imperative to closely monitor the taxconsequences associated with each possible restructuring option assome differences and specifics may remain.

What budgetary measures may impact yourbusiness?

It is recommended that MNEs follow the budgetary measuresclosely during the coming months so they can assess the impact ontheir business.

The Belgian government reached agreement on 9 October 2023 onvarious budgetary measures, including some tax measures that mayimpact MNEs. The most important ones can be summarised as follows.Please note that no official documents have been published.

• The current Controlled Foreign Corporation ('CFC')regime will be changed. The Anti-Tax Avoidance Directive('ATAD') obliged Member States to implement a CFC rule. TheATAD left Member States the option to:

i. either include non-distributedspecific types of passive income in the taxable basis of the
controlling taxpayer (Model A); or

ii. include non-distributed incomearising from non-genuine arrangements which have been put
in place for the essential purpose of obtaining a tax advantage(Model B).

• Two specific anti-abuse provisions would be brought in linewith case law of the Court of Justice of European Union. Theseprovisions target certain payments to or certain transactions withdirectly or indirectly related foreign persons that are subject tono or low corporate income tax. The provisions will not apply ifthe Belgian taxpayer demonstrates that (i) the recipient is subjectto a tax that equals at least half of the tax that would be due ifthe recipient was established in Belgium, or (ii) the transactionhas been entered into for commercial or economic reasons thatreflect economic reality.
• More rigorous tax audits will be performed on the applicationof non-legal entities taxation and special regimes under thecorporate income tax.
• The investment deduction will be increased for sustainable andsocially-responsible investments and the rules will besimplified.
• Specialised real estate investment funds ('FIIS/GVBF')will be subject to an additional tax of 10% if a real estate assetleaves the FIIS/GVBF tax regime within five years after payment ofthe 15% corporate exit tax. This latter tax is due if the FIIS/GVBFregisters itself on a list maintained by the Ministry of Finance,which results in the application of a special FIIS/GVBF tax regimeconsisting of a limited tax base.
• The rate of registration duties on long-term leases and rightsto build would be increased from 2 to 5%.

Takeaways and tips

• Although no official text is available yet and the abovemeasures might be subject to change, MNEs are advised to assess nowthe impact of these budgetary measures on their business.
• If the new CFC rule is adopted, increased discussions on thesubstance of a CFC can be expected. In anticipation of the new CFCrule, MNEs with subsidiaries in low-tax or no-tax jurisdictions aretherefore recommended to verify whether an adequate level ofsubstance can be demonstrated in these jurisdictions, which is tobe assessed on a case-by-case basis, and to prepare a defense filein this respect.

E-invoicing and notification obligation for VATdeduction through pro rata

MNEs should start to prepare for e-invoicing, whilebusinesses deducting VAT through a pro rata should review theirdeduction processes.

Mandatory e-invoicing was initially part of the failed taxreform but was relaunched as a separate measure by the BelgianMinister of Finance at the end of the summer 2023. The new proposalmakes e-invoicing mandatory for businesses established in Belgiumin a B2B context as of 1 January 2026. Although no official drafttext is available, it was indicated that a broad transition periodwill be granted, allowing businesses to align their accounting /invoicing software with the Pan-European Public Procurement Online('PEPPOL') network. It is expected that the largestcompanies will need to adopt e-invoicing first and smallercompanies only later in 2026 or 2027.

The Belgian mandatory e-invoicing is linked to the VAT in theDigital Age ('ViDA') proposal launched by the EuropeanCommission late last year. The ViDA proposal imposes an e-invoicingobligation for all transactions within the EU as of 2028. Both theBelgian and European proposal on e-invoicing constitute a necessarystep towards digital transaction-based reporting('e-reporting') allowing VAT authorities to monitortransactions and invoicing flows in real-time. While e-reportingwould be phased in for intra-Community transactions as of 2028,there is no timeline on e-reporting in Belgium.

The Belgian parliament has also adopted a legislative proposalrequiring mixed taxable persons and partial taxable persons tonotify the VAT authorities electronically of the general pro rataor specific pro rata they respectively apply. A similarnotification obligation was introduced for mixed taxable personsdeducting VAT through the 'real use' method at the start of2023. Although the proposed measure is of a technical nature, inpractice it requires partially taxable persons, such as, activeholding companies that are not involved in the management of alltheir subsidiaries, to notify the VAT authorities of theirdeduction method for general costs. General costs are costs havingno direct link to either the taxable activity or the activity thatis out of scope of VAT. The notification obligation enters intoforce on 1 January 2024. Taxable persons already deducting VATthrough a general pro rata must notify the VAT authorities before 1July 2024.

Takeaways and tips

• It is strongly recommended that MNEs get started on ane-invoicing roadmap, as making the required updates to the internalaccounting and invoicing software can be time-consuming.
• For the VAT deduction notifications, it should be assessedwhether a notification should be made and whether the currentdeduction method is correct. It is expected that the data collectedby the VAT authorities after a notification will allow for moretargeted VAT audits.

Cross-border teleworking and socialsecurity

As mentioned above, the Framework Agreement applies to EU MemberStates that have signed the agreement, as well as to Norway,Switzerland and Liechtenstein. Under the Framework Agreement, theemployer and the employee can opt in for continuation of the socialsecurity legislation of the state of the employer's registeredoffice or place of business whilst the employee is cross-borderteleworking from home for less than 50% of the time. Belgium,France, Germany, Luxembourg and the Netherlands have signed theFramework Agreement, as a result of which these new rules can beapplied in cross-border teleworking situations between Belgium and,inter alia, these countries. Since the United Kingdom did not signthe Framework Agreement, this rule cannot be applied betweenBelgium and the United Kingdom. For more information we refer toournewsletter.

Luxembourg – Domestic developments

General developments in the tax landscape

As has been the case for several years now, the main changes inthe Luxembourg tax environment derive from EU or international taxdevelopments and this will continue. Monitoring these developmentsand their implementation in Luxembourg law is a matter of course.Having an insight into the developments of the Luxembourg taxauthorities' expertise, which is associated with an increase inaudits and disputes, should help MNEs to set their nextpriorities.

The analysis of the impact of the Pillar Two rules on theorganisation of MNEs has been one of the main focuses in 2023. Formany MNEs with Luxembourg presence, the relevant items were thedeferred tax assets resulting from carried forward losses ofperiods up to 30 November 2021 and the rules on intragroupfinancing arrangements. Considering the complexity of the rules andthe fact that some of the OECD administrative guidance has beenissued since the adoption of the Pillar Two Directive, the effortsrequired by MNEs to fully assess the tax impact of the Pillar Tworules will need to be continued in 2024 in parallel with theadaptation of their data process systems in order to be ready forthe Pillar Two tax filings.

The proposal for the Unshell proposal will most likely evolveand might require a further simplification and rationalisation ofthe holding structures of MNE groups.

2023 was an election year in Luxembourg at federal level.However, the new government, once formed, is not expected tointroduce major changes to the taxation rules of companies. It isvery likely that the enlargement of the teams at the Luxembourg taxauthorities will further increase the number of audits andlitigation cases. MNEs should be prepared for this and, in additionto the required transfer pricing documentation, MNEs should notonly ask advice on the tax impact of an envisaged restructuring butshould also ensure that the legal documentation implementing therestructuring is reviewed from a tax perspective.

Update Pillar Two

On 4 August 2023, Luxembourg published a legislative proposal totranspose the EU directive implementing Pillar Two into domesticlaw as of 31 December 2023.On 13 November 2023, amendments tothe proposal were published aiming at implementing some items ofthe OECD Administrative Guidance from February and July 2023.

The proposal, as amended, implements the Global Anti-BaseErosion ('GloBE') Rules in an autonomous law, i.e. separatefrom the regular income tax law, introduces a Qualified DomesticMinimum Top-up Tax (QDMTT), transitional Undertaxed Payment Rule('UTPR' ) and Country-by-Country safe harbours, a QDMTTsafe harbour, a permanent safe harbour (still to be agreed at theOECD level), and integrates some elections in line with OECDGuidance. Essentially, the proposal reflects the directive and OECDAdministrative Guidance with a few additional elements, such as theconfirmation that Luxembourg corporate income tax, municipalbusiness tax and net wealth tax are covered taxes for Pillar Twopurposes. Under the current wording, the QDMTT is aligned withGloBE Top-up Tax computations and, as a general rule, would becalculated following local GAAP. Subject to certain conditions IFRSor the qualifying financial accounting standard used forconsolidation purposes should be followed. The proposal introducescompliance obligations which comprise both information returns andIncome Inclusion Rule ('IIR'), Undertaxed Payments Rule('UTPR') and QDMTT returns. Whereas the information returnfollows the OECD concept of a GloBE information return, the IIR,UTPR and QDMTT returns should be filed if any of these taxes becomedue in Luxembourg. All in-scope entities will have some degree ofPillar Two-related compliance.

The parliamentary examination of the proposal is expected tocontinue before it is adopted, as the new members of parliamenthave taken office, and a new Luxembourg government is in place. Inparallel, certain bodies such as the Chamber of Commerce and theState Council will also have to issue their (non-binding) opinionson the Luxembourg legislative proposal, as amended. The officialintention remains for the legislative proposal to be adopted priorto 31 December 2023.

Takeaway and tips

• While some amendments may still take place, the currentproposal already provides relevant elements to be considered.
• MNEs and large-scale groups in scope of Pillar Two withpresence in Luxembourg should take action to ensure an efficientPillar Two outcome in Luxembourg.
• Our Pillar Two team can assist with the:
  1. Country-by-Country Reporting ('CbC Reporting') SafeHarbour analysis;
  2. Pillar Two analysis for disclosure in 2023 financialstatements;
  3. Pillar Two in M&A transactions; and
  4. Pillar Two analyses and restructurings.

Update Public CbC Reporting

A brief overview

On 19 July 2023, the Luxembourg parliament adopted the lawimplementing the EU Directive 2021/2101 which introduces a newpublic Country-by-Country Reporting ('Public CbCReporting') obligation.

Who should disclose?

Subject to some carve-out and exclusions from the scope ofapplication, EU-based multinational enterprises ('MNEs')and non-EU based MNEs doing business in Luxembourg via a subsidiaryor a branch with a consolidated annual turnover of at least EUR 750million for two consecutive years will need to publish and providecertain information. Reporting obligations for entities having aPublic CbC Reporting obligation are broader than those under theregular existing CbC Reporting obligation. Luxembourg companiespart of a MNE group should verify how the new Public CbC Reportingobligation applies to them.

What information to disclose?

The Public CbC Report should include, amongst other things, forthe financial year concerned a list of all subsidiaries included inthe consolidated accounts, a brief description of the nature of theactivities, the amount of profit or loss before tax, the amount ofcorporate income tax and withholding tax paid, and the number ofFTEs.

How to disclose?

In-scope entities must file and publish the Public CbC Reportwith the Luxembourg Trade Register (Registre de Commerce et desSociétés) and make available its content in oneof the EU languages on the website of the MNE free of charge. Theentity is exempt from publication on the website provided that theinformation is accessible to the public free of charge in one ofthe EU languages and the link to the register is put on thewebsite.

Any possible deferral?

Luxembourg opted to allow in-scope entities to defer, undercertain conditions and for a maximum of five years, the disclosureof some commercially sensitive information where such disclosuremay seriously prejudice the commercial position of the undertaking.Any omission should be clearly indicated and accompanied by anexplanation.

Timing of the first Public CbC Report?

The Public CbC Report will apply to financial years starting onor after 22 June 2024. The first public report will need to bepublished within 12 months of the closing of the financial year forwhich the declaration is drawn up. More specifically, for companiesclosing their accounts on 31 December, the new rules will startapplying from 1 January 2025 and the first report will need to befiled and/or published by 31 December 2026 at the latest.

Sanction?

Failure to comply with the new Public CbC Reporting obligationmay lead to a fine of between EUR 500 and EUR 25,000 for themanagement, administrative or supervisory boards, as well as branchrepresentatives.

Takeaway and tip

Given the publication of the information and the personalresponsibility of managers, MNEs should prepare their Public CbCReporting obligation as soon as possible.

Master file / Local file and BAPA procedure –project for an implementing decree

On 28 March 2023, the Luxembourg government presented alegislative proposal to reform certain tax administrative andprocedural aspects, as well as documentation requirements.

Amongst the different measures, the government proposes tointroduce a new provision where taxpayers will need to submit theirtransfer pricing policy to the Luxembourg tax administration ondemand. A draft Grand Ducal regulation was published,simultaneously with the abovementioned legislative proposal. Thisdraft regulation provides for a new master file and local fileobligation.

On this basis:

• Any constituent entity of an MNE group with a CbC Reportingobligation must prepare a local file detailing the transfer pricinganalysis of the transactions with related parties, and thisanalysis must be available at all times to the Luxembourg taxauthorities.
• Any constituent entity of an MNE group with a CbC Reportingobligation and either having a net turnover for an operating yearof at least EUR 100 million or having a balance sheet total of atleast EUR 400 million must prepare a master file, that is availableat all times to the Luxembourg tax authorities.

The contents of the local file and master file are both alignedwith the requirements included in the BEPS Action 13 report. Largeholding companies should carefully check whether they meet thethreshold for the proposed master file obligation.

Under the same legislative proposal, the government has alsoproposed a draft Grand Ducal regulation introducing a new bilateraland multilateral APA ('BAPA', 'MAPA') procedure,based on the provisions of Article 25(3) of the OECD Model TaxConvention. The APA request must contain the information,consistent with what is already requested for a MAP. While it isalready possible to request a BAPA or a MAPA, following this draftregulation the application will be subject to an application feeranging from EUR 10,000 to 20,000, regardless of the outcome.

To date, the legislative proposal has faced much criticism, bothfrom stakeholders and the State Council (Conseild'Etat), as it restricts taxpayer rights. It remains to beseen whether the proposals will be adopted or whether they willundergo significant amendments. That being said, the intention toalign transfer pricing documentation with the BEPS Action 13 Reportis set and taxpayers should make sure that all related partytransactions are supported with ad hoc transfer pricingdocumentation.

Cross-border teleworking and socialsecurity

Luxembourg tax and social security rules on working fromhome: towards a harmonisation of the tax tolerance thresholds andgreater flexibility in social security rules.

Since 1 January 2023, changes in tax and social securitylegislation in Luxembourg to facilitate access to working from home('teleworking') have continued to evolve so that theLuxembourg tax and social security rules do not represent anobstacle in enabling cross-border employees of Luxembourg companiesto telework.

Luxembourg has been able to harmonise the tax thresholds forworking days spent outside Luxembourg, including teleworking days,with its neighbouring countries of Germany, Belgium and France. Asof 1 January 2024, the tax tolerance threshold will be 34 days perannum for German, Belgian and French residents.

These tax tolerance thresholds allow non-resident employees towork outside Luxembourg without triggering taxation in theircountry of residence. In other words, cross-border workers who donot exceed the tax tolerance thresholds in a certain year, remainsubject to Luxembourg taxation.

From a social security point of view, on 5 June 2023 Luxembourghas signed the Framework Agreement based on Article 16 of theRegulation (EC) No 883/2004 related on the coordination of socialsecurity systems. For further information we refer to aboveandournewsletter.

In application of the Framework Agreement which came into forceon 1 July 2023, cross-border workers can telework while remainingsubject to Luxembourg social security legislation, provided thatthe time worked in their respective countries of residence is lessthan 50% of their actual working time. These new developments willhelp Luxembourg employers to implement a teleworking procedurebased on equal treatment between employees regardless theirrespective countries of residence, provided they are resident in acountry that has signed the Framework Agreement. Employers shoulddeclare any teleworking activities carried out by the employees tothe Luxembourg social security authorities.

Switzerland – Domesticdevelopments

General developments in the tax landscape

The year 2023 saw a multitude of new tax legislation andprojects being put forward which may alter the Swiss tax landscapeboth internationally and domestically in significant ways.

Switzerland has committed to implementing Pillar One and PillarTwo legislation. The constitutional basis recently approved bySwiss voters will serve as the entry point for both projects.Whereas Pillar One is still work in progress, Pillar Two isexpected to apply as of 1 January 2024 (for IRR and QDMMT) and 1January 2025 (for UTPR) respectively. See below.

On the transactional side, the failed attempt of the Swissgovernment to abolish interest withholding tax and securitiestransfer stamp tax means that current financing transactions stillneed to adhere to the non-bank rules to avoid attracting interestwithholding tax. Based on longstanding practice of the Swissfederal tax administration, internationally accepted financingstructures not attracting interest withholding tax can beimplemented, provided certain conditions are met. The same appliesto securitisation deals in case of a true-sale structure. Existingpractice has clear guidance on when such true-sale structure existsfrom a Swiss tax perspective. Tax practice is in constantdevelopment and it is therefore crucial to review financingstructures with Swiss parties in detail in order to ensurecompliance with local requirements.

For M&A transactions, Swiss securities transfer stamp tax('STT') remains an important point for attention. Due torecent case law, Swiss holding companies registered as Swisssecurities dealers for STT purposes may even be liable to STT inthe event that they are not formally acting as a party on the buyor sell side – but, based on all facts and circ*mstances,only as an intermediary to a transaction. This can be the case inparticular if the senior management of such a Swiss entity isactively and publicly involved in the negotiation or closure of adeal. As the STT can be up to 0.3% of the fair value of the deal,the risks can be significant if not addressed properly.

In addition, the expansive application of dividend withholdingtax anti-avoidance rules continues to establish a strong incentiveto use non-Swiss acquisition vehicles in transactions. This becausedomestic vehicles are subject to very strict anti-avoidance rules,typically resulting in some form of non-refundable dividendwithholding tax. Especially in transactions with roll-over orre-investments for management, the current dividend withholding taxpractice hinders internationally standardised structuring optionsand imposes a Swiss finish to achieve a similar outcome. Therefore,M&A transactions should be carefully reviewed to avoid pitfallswith respect to Swiss withholding tax.

Switzerland has also renegotiated and concluded several new taxtreaties, notably with France, Italy and Germany with a focus oncross-border teleworking. See below

Update Pillar Two

On 18 June 2023, Switzerland held a popular referendum vote toadopt domestic Pillar Two legislation. The proposal put forward tovoters provides for the approach by way of a federal ordinance withdirect reference to OECD Model Rules, Commentary and AdministrativeGuidance and would notably introduce the Income Inclusion Rule('IIR'), a Qualified Domestic Top-up Tax ('QDMTT')and the Undertaxed Profits Rule ('UTPR').

As Swiss voters accepted the proposal, the Swiss federalgovernment has launched a public discussion draft of theimplementation ordinance and indicated that it will enact the IIRand QDMTT as of 1 January 2024, with the UTPR following as of 1January 2025.

The implementation ordinance is temporary in nature and will bereplaced by a federal ordinance during the coming years. The publicdiscussion draft on the ordinance predominantly covers certainelections for jurisdictions under the OECD Model Rules as well asprocedural rules. For instance, as Switzerland, similar to theUnited States, has a multi-tiered tax system where both the federalgovernment as well as cantons and municipalities levy corporateincome tax, the implementation ordinance provides that only onedesignated canton is competent to levy QDMMT or IIR if an MNE has ataxable presence in different cantons. Specifically, the designatedcanton will be the one where an MNE had the highest average incomeafter tax or equity in the past three fiscal years.

Due to the direct reference to OECD rules, the Swiss governmentexpects the Swiss QDMTT to be accepted as qualifying QDMTT withrespect to the safe harbour rules. Under the latest publicdiscussion draft, the government also proposed to calculate theQDMTT in line with the accounting standard applicable to theUltimate Parent Entity ('UPE'). In the public consultationprocedure, certain advisers asked to switch to a domestic standard,Swiss GAAP FER, in this respect. This would, however, requirenon-Swiss MNEs with Swiss operations to conduct yet anothercalculation under Swiss GAAP FER as a jurisdiction can only electone specific standard, namely either domestic standard or UPEstandard, for purposes of the QDMTT. Although the revisedimplementation ordinance has not yet been published, the federalgovernment has already indicated that it does not intend to burdenforeign investors with more administrative work by adopting adomestic standard, as there is little to no added value in doing sounder the QDMTT.

In view of the expected domestic implementation as of 1 January2024, many MNEs in scope of Pillar Two have reviewed Swissoperations and acted where required in view of differing domestictaxes and Pillar Two rules. During the coming years, cantons willalso have to publish their strategy on whether they will adoptmeasures, such as qualifying refundable tax credits('QRTCs'), which are accepted promotion measures underPillar Two. The federal government has already published a surveycovering all cantons, but plans are still in their earlystages.

It cannot be excluded that the Swiss government would delay theimplementation process depending on international developments anddomestic support for the project towards the end of 2023.

Tip

Our Pillar Two team can assist with the:

1. Country by Country Reporting ('CbC Reporting') SafeHarbour analysis;
2. Pillar Two analysis for disclosure in 2023 financialstatements;
3. Pillar Two in M&A transactions; and
4. Pillar Two analyses and restructurings.

Cross-border teleworking and socialsecurity

As mentioned above, the Framework Agreement applies toSwitzerland, as well as to EU Member States that have signed theagreement, Norway and Liechtenstein. Under the Framework Agreement,the employer and the employee can opt in for continuation of thesocial security legislation of the state of the employer'sregistered office or place of business whilst the employee iscross-border teleworking from home for less than 50% of the time.Switzerland, Austria, Germany, Liechtenstein and France have signedthe Framework Agreement, as a result of which these new rules canbe applied in cross-border teleworking situations betweenSwitzerland and, inter alia, these countries. However, since Italyhas not yet signed the Framework Agreement, in cross-bordersituations involving Italy, the usual rules should apply unless theemployer and the employee request a mutual agreement under art. 16of Regulation 883/2004. For more information we refer toournewsletter.

Cross-border teleworking: updated tax treaties withFrance, Italy and Germany

Tax treaty with France

Switzerland and France have agreed to sign a mutual agreementamending the existing double taxation agreement and include newrules for working from home ('teleworking'). These ruleshave provisionally been applied since 1 January 2023 and will beformally included in the updated agreement signed on 27 June2023.

The main provision allows cross-border commuters to work fromhome up to 40% of their working time per calendar year withoutaffecting the taxation rights of the countries. Thus, below the 40%threshold, the telework salary is taxable in the contracting statewhere the employer is located.

Switzerland and France have also agreed on a common definitionof 'teleworking activities carried out from the country ofresidence'. Teleworking activities include, on the one hand,temporary assignments carried out by the employee in the state ofresidence or in a third state, up to a maximum of 10 days per yearand, on the other hand, 40% of the working time per year spentteleworking. This 10-day tolerance period for temporary assignmentsis intended to complement the concept of teleworking and provideflexibility compared to the normal rules applicable before theCOVID-19 pandemic. Thus, days spent by employees on temporaryassignments in their country of residence or in a third countrywill be treated as days spent teleworking in their home country, upto an annual limit of 10 days. This new tolerance of 10 days can becombined with the 40% telework quota.

With regard to the allocation of tax revenues, the state of theemployer (Switzerland) will pay 40% of the taxes it has levied onthe remuneration paid for telework to the state of theemployee's residence (France). The revised agreement providesfor the automatic exchange of information on salary data betweenSwitzerland and France.

Tax treaty with Italy

The agreement between Switzerland and Italy on the taxation ofcross-border commuters entered into force on 17 July 2023, marks animportant milestone in the bilateral relations between the twocountries. The new agreement brings significant improvements in thecurrent arrangements for taxing cross-border commuters. From 1January 2024, Switzerland will retain 80% of the withholding taxdeducted from the income of cross-border commuters who entered theSwiss labour market after 17 July 2023 (i.e. new cross-bordercommuters). In addition, these cross-border commuters will besubject to ordinary taxation in Italy but will not be subject todouble taxation as a result of the application of a tax credit.

There is a transitional provision for existing cross-bordercommuters who worked in the cantons of Graubünden, Ticino orValais between 31 December 2018 and 17 July 2023. Thesecross-border commuters will continue to be taxed only inSwitzerland, and Switzerland will pay financial compensation to theItalian border municipalities, equal to 40% of the withholding taxcollected, until the end of the 2033 fiscal year.

In addition, following this agreement the Swiss FederalDepartment of Finance has also made changes to the Swiss ordinanceon withholding tax as part of the direct federal tax for Italiancross-border commuters, which will enter into force on 1 January2024.

Tax treaty with Germany

Switzerland and Germany signed a comprehensive protocol amendingthe double taxation agreement (DTA Switzerland-Germany) on 21August 2023. The protocol contains provisions for cross-bordercommuters, in particular with regard to Article 15a paragraph 2 ofthe DTA Switzerland-Germany, which describes the characteristicsthat must be fulfilled for a cross-border commuter to be classifiedas such.

Updated tax treaties with France and Germany oninternational developments

Tax treaty with France

Switzerland and France have agreed to sign a mutual agreementamending the existing double taxation agreement. These amendmentsinclude a number of more general updates. These mainly concernupdates required under the Multilateral Instrument ('MLI'),such as the Principal Purpose Test ('PPT'). The revisedtreaty also includes an exclusion for all taxes levied under theOECD Pillar Two.

Pending formal approval by their respective parliaments, Franceand Switzerland have agreed to apply the provisions of theadditional agreement until 31 December 2024.

Tax treaty with Germany

Switzerland and Germany signed a comprehensive protocol amendingthe double taxation agreement on 21 August 2023. This protocolincludes several adjustments, such as improving legal certainty andcooperation in tax matters between the two contracting countries.It also includes provisions that were previously contained inreciprocal agreements and introduces clear deadlines for possiblemutual agreement or arbitration procedures.

The protocol of amendment also reflects internationaldevelopments at OECD level since the last protocol of amendment wasconcluded on 27 October 2010. In particular, the OECD minimumstandards will be applied bilaterally in accordance with theMultilateral Convention to Implement Tax Treaty Related Measures toPrevent the Base Erosion and Profit Shifting. This is reflected inparticular in the introduction of the Principal Purpose Tests('PPT') as an anti-abuse clause. It also incorporatescertain provisions of the 2017 OECD Model, in particular withrespect to profits of permanent establishments. The protocol ofamendment still needs to be approved under the respective nationallegislative procedures, which means that it is expected to enterinto force on 1 January 2025 at the earliest.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.