The Luxembourg Administration of Direct Tax has updated its Country-by-Country (CbC) reporting guidance page, including an updated CbC reporting FAQ, to reflect the latest OECD recommendations.

The update addresses whether profits (losses) before income tax in Table 1 should include payments received from other Constituent Entities that are treated as dividends in the payer’s tax jurisdiction.

Multinational groups with consolidated annual revenue of EUR 750,000,000 or more during the fiscal year immediately preceding the reportable fiscal year are required to provide tax authorities with certain information regarding their structure, transfer pricing policy, and internal transactions.

To this end, any constituent entity of a multinational group that is tax-resident in Luxembourg must annually submit a Country-by-Country notification to the Administration of Direct Taxes (ACD), indicating whether the entity is the reporting entity in Luxembourg. If the constituent entity is not the reporting entity in Luxembourg, it must provide the ACD with the identity and tax residence of the reporting entity.

Furthermore, any ultimate parent entity of a multinational group that is tax-resident in Luxembourg, or any other reporting entity in Luxembourg, must submit an annual Country-by-Country report to the ACD.

The revised guidance clarifies two main points:

1. Consistent with revenue, profits (losses) before income tax exclude payments received from other constituent entities that are treated as dividends in the payer’s tax jurisdiction.
2. Payments received from other constituent entities that are treated as dividends in the payer’s tax jurisdiction, which refers to those payments categorised as dividends in the source data used for completing Table 1 concerning the payer’s tax jurisdiction.

The Country-by-Country (CbC) reporting was developed by the OECD and is incorporated into the European Directive (EU) 2016/881 of the Council of 25 May 2016, amending Directive 2011/16/EU regarding the automatic and mandatory exchange of information in the tax field. These provisions are transposed into domestic law by the amended law of 23 December 2016, relating to Country-by-Country reporting, published in the Mémorial A – No. 280 of 27 December 2016.