classification sheet - The Irish Times
CLASSIFICATION SHEET
This document relates to the following request:
BUREAU D'IMPOSITION SOC. 6 ENTRE:E
11 November 2009
11
References: CDT/NLKL/Q27091 77M-CEQN
Client (Fiscal number): Northern & Shell Luxembourg Finance Sarl - 2009 24 02445
I. Key topics: Net Wealth Tax 2. Name of the advisor: PwC 3. Corporate group's name, or fund sponsor: Northern & Shell 4. Name of the project: Luxembourg Irish structure 5. Amount intended to be invested: GBP 826mio 6. Date of receipt:
1 1 NG V 2009
I
Priccwatcr houscCoopcrs Socictc a rcsponsabilitc limitcc Rcviscur d'cntrcpriscs 400, route d'Esch
For the attention of Mr Marius Kohl
Administration des Contributions Directes Bureau d' imposition Societes VI 18, Rue du Fort Wedell L-2982 Luxembourg
B.P. 1443 L-1014 Luxembourg Telephone+352 494848-1 Facsimile+352 494848-2900 www.pwc.com/lu
[email protected]
BUREAU D'IMPOSITION SOC. 6
ENTREE
11 November 2009 References: CDTIN LKL/Q2709 l 77M-CEQN
Northern & Shell Luxembourg Finance Sari - 2009 2402 445 Luxembourg Irish structure
Dear Mr Kohl, ln our capacity of tax consultant of the above-mentioned client, we discussed in our meeting dated 19 October 2009 the tax treatment applicable to the transactions foreseen by our client. This letter aims at confirming the conclusions reached during this meeting and will serve as a basis for the preparation of the tax returns of the Luxembourg Company involved.
A
Background 1.
We refer to our letter dated 11 February 2009 (referred CDT/CEQN/Q2709014M-MLFO) for the detailed description and tax analysis of the financing structure set up by the Northern & Shell Group (hereafter referred to as "Group") further to which intra-group receivables towards Northern & Shell Network Limited, Northern & Shell Pie, Northern & Shell Worldwide Limited and Express Newspapers (all together referred to as "Receivables") were transferred to LuxFinCo in exchange for an Intra-group Convertible Loan Note (hereafter referred to as "ICLN 1").
2
We also refer to our letter dated 24 June 2009 (referred CDT/NLKL/Q2709113M-FYHS), for the second financing structure decided by the Group further to the maturity of the above-mentioned ICLN 1 on 19 June 2009. Indeed, LuxFinCo established a Luxembourg subsidiary (hereafter referred to as "LuxFinCo 2") to which it transferred the Receivables it held in consideration for another Intra-group Convertible Loan Note (hereafter referred to as "ICLN 2") for an amount of approximately GBP 826m.
R.C.S. Luxembourg B 65 477 - TVA 1.U 17564447
3 It is now contemplated for LuxFinCo to set-up an Irish non-trading branch. 4
B
For your information, you will find enclosed the background information and the current abridged group structure (Appendix 1) as well as the contemplated transaction and the final abbreviated structure (Appendix 2). Finally, the proposed Luxembourg tax treatment is described in Appendix 3.
Applicable Tax Regime 5
LuxFinCo will close its accounts on 31 December. Its situation as at 31 December will be taken into consideration to detennine its unitary value for net wealth tax.
6
Based on the developments detailed in Appendix 3, the Irish non-trading branch should be treated as a "permanent establishment" of LuxFinCo in Ireland.
7
For the calculation of LuxFinCo's net wealth tax, funds allocated to its Irish non-trading branch will not be taken into consideration in accordance with article 22§2 and 23§3a of the tax treaty between Luxembourg and Ireland.
8 The GBP 826m Receivables recorded in the commercial accounts of LuxFinCo will be offset for determining the unitary value of the Luxembourg Company, by the GBP non-interest bearing debt owed to the Irish non-trading branch (that corresponds mainly to the funds allocated to the branch). 9
GBP is the functional cmTency of LuxFinCo for accounting and tax purposes. Accordingly, no foreign exchange differences should arise with respect to the financing from an accounting and tax perspective.
(2)
We remain at your disposal should you need any further information and would like to thank you for the attention that you will give to our request.
Yours sincerely,
Catherine Dupont Partner
Appendices: Appendix 1: Background information and current abridged group structure Appendix 2: Contemplated transactions and final abbreviated structure Appendix 3: Luxembourg tax treatment
711is tax agreeme11t is based on the facts as presented to PricewalerhouseCoopers Sari as at the date the ad11ice was given. 17ie agreement is dependent on specific/acts a11d circumstances and may not be appropriate to any party other than the one for which It was prepared. 771is tax agreeme/I/ was prepared with 011/y the interests ofNorthem & Shell in mind. and was 1101planned or carried out in contemplation of any use by any other party. Pricewaterho11seCoopers Sdrl, its parmers. employees and or agents, neither owe nor accept any duty of care or any respo11sibili1y 10 a11y other party. whether in co111rac1 or in tort (including without limitation. 11egllge11ce or breach ofstatutory duty} howe1•er arising. and shall not be liable i11 respect ofany loss. damage or experue ofwhatever nature which is caused to any other party.
(3)
Appendix 1 Background information and current abridged group structure Northern & Shell was founded in December 1974 and became an important player in the British and worldwide media. The group holds a broad portfolio of magazines and broadcast interests and acquired the Express Newspapers in November 2000. Today, Northern & Shell owns four national newspapers and is 50 per cent joint venture partner in two more newspapers in Eire. It also dominates important parts of the consumer magazine market in the UK and worldwide with 12 foreign editions, operates in all major areas of publishing and has diverse interest in television, print, distribution, investment and property.
RCD1
Convertible loan note - - - - - - - Forward subscription agreement Loan
N&S Network
Finance
I I
,,
---- --- --- ---
I I
'
Worldwide
Media
MH Express
Forward subscription
(4)
Appendix 2 Contemplated transactions and final abbreviated structure Contemplated transactions: Step 1: On 5 November 2009, LuxFinco set up an Irish non-trading branch with branch capital of around GBP equivalent of EUR 100,000.
Step 2: On [December], LuxFinCo will allocate GBP 823.Sm out of its total Receivables ofGBP 826m to its Irish non-trading branch as branch capital.
Step 3: On the same day, LuxFinCo's Irish non-trading branch will lend back GBP 823.Sm receivables to LuxFinCo in consideration for a GBP 823.Sm interest free loan.
Final abbreviated structure:
RCD1
Convertible loan note - - - - - - - Forward subscription agreement Loan
N&S Network
Finance
, I I
,'
IFL£823.5m
---- --- ---
__ ,
,,
,
Worldwide
Media
MH
I
Express
Forward subscription
(5)
Appendix 3 Luxembourg technical tax analysis Double tax treaty concluded between Luxembourg and Ireland 1
According to the information we have at our disposal, Lux FinCo is a Luxembourg tax resident company according to article 159 LITL and according to article 3§1 (g) and (h) of the tax treaty concluded between Luxembourg and Ireland (hereafter referred as the Treaty).
2
From a Luxembourg tax perspective, the tax treatment of the Irish branch will depend on its substance. The Irish branch is considered to be a non-trading branch in [reland.
3
In this respect, the branch will have: • • • • • •
an office space and an Irish address, all necessary material to carry out its activities (i.e., desk, fax, etc.), a company name which will be displayed at the premises, a telephone number which will be listed in the public phonebook, its own bank account, separate accounting records.
4
At least one manager will be appointed. This manager will be in charge of the daily management of the Irish branch. He will, among others, assist with the lending of funds and manage the loan to LuxFinCo.
5
The branch will be managed and controlled only in Ireland by its own Irish manager who will also be the branch's employee. All decisions pertaining to the business of the branch will be taken in Ireland. The permanent establishment will have the authority to conclude contracts in the name of the company and the signatory authority on the bank account of the company.
6
Moreover, the following documents will be retained in Ireland and made available upon request: • •
• • • • • • •
the minutes of the board meeting of LuxFinCo creating the Irish non-trading branch and allocating funds to the latter; the minutes of the board meeting of LuxFinCo appointing the Irish non-trading branch manager and any subsequent minutes of board meeting in relation with the bran.ch; a copy of the rental agreement for the office space; a copy of a contract for an own telephone number; a copy of the branch management a&rreement; a copy of the payrolls of the branch; a copy of the registration deed in Ireland; a copy of the contract for a local Irish bank account; a copy of the registration deed in Ireland (or a substitute). (6)
7
In view of the aforementioned local substance in Ireland, the Irish non-trading branch will be qualified as a ''permanent establishment" of LuxFinCo in Ireland, as defined in article 4 of the Treaty.
Tax treatment of income realized by the Irish permanent establishment 8
According to article 6§1 of the Lux-Irish Treaty (in this section referred to as 'the Treaty'), the business profits attributable to an Irish permanent establishment of a Luxembourg company may be taxed in Ireland.
9
Moreover, article 23 of the Treaty provides for methods to eliminate double taxation. Article 23§3 (a) of the Treaty stipulates that where a Luxembourg resident derives income, which in accordance with the Treaty may be taxed in Ireland, such income shall be exempt from tax in Luxembourg. Article 23§ 1 Lux-Irish Treaty, however, subjects the exemption provided by article 23§3 (a) to the condition that the income to be exempted in Luxembourg has been "subject to tax" in Ireland (French wording: ''passible de l 'imp6t").
10 Article 23§1 of the Treaty in its French version does not provide for a subject to tax condition but merely to a "may be subject to tax" condition. Indeed, the French version 1 of the Treaty is clear concerning article 23§ 1 of the Treaty, whereas the English version2 could give rise to some doubts concerning the notion of "subject to tax". 11 Since, in case of doubt, both texts are equally authoritative, reference should be made to other sources. Article 23 of the Treaty is based on the OECD Model Convention3 ('the Convention'). As a consequence the interpretation in case of doubt should he inspired by the Convention and its official comments 4 • 12 In this respect, it should be noted that the Convention in French is similar to the French version of the Treaty5, whereas the English version of the Treaty does not use the same wording as the Convention6. The comments of the draft bill do not mention an intention of the parties not to follow the Convention, whereas it is mentioned for other articles when it is the case7.
1
The French version Jays down that "lorsqu 'un revenu est possible de l 'imp6t dans /es deux etats contractants ... ", which can be translated by "where an income may be taxed". 2 The English version Jays down that "where income is subject to tax". 3 Preparatory works 0°1679, pages 34, 1933 and 1950 4 Preparatory works n°1679, pages 34 and 1933 5 The French version of the Treaty uses "passible de l'impot" and the French version of the Convention uses "imposable". 6 The Treaty mentions "subject to tax", whereas the Convention mentions "may be taxable". 7 E.g articles 18 and 20, cf page 1935 of the Preparatory work n° 1679.
(7)
13 Furthermore, the Convention does not usually require "an effective taxation" of income as a condition for the application of an exemption. As a consequence, article 23§1 of the Treaty should not be viewed as requiring an effective taxation but rather and only as referring to the right to tax that both countries have8. Moreover, this analysis of article 23§ l is consistent with all paragraphs of article 23.
14 Notwithstanding the above analysis, and complementarily, even in case a doubt would remain with respect to the interpretation of the English version of article 23 § l of the Treaty, such doubt would disappear in the light of the general interpretation of the Convention and official commentaries thereof. 9
15 As mentioned above, the comments of the draft bill do mention that the Treaty follows in principle the Convention. 16 For the purpose of this interpretation, it has to be noted that a new anti-abuse provision was included in the Convention in 2000. New article 23 A paragraph 4 of the Convention provides that the exemption method for elimination of double taxation, provided by article 23 A paragraph 1, will not apply if the income is exempt from tax in the source country by application of the provisions of the Convention itself. In the case at hand, this would mean that Luxembourg could not exempt the income from tax if Ireland exempts this income from tax by application of the Convention. 17 The official commentaries to the Convention (Comment C(23) (24) point 56.2) expressly provide for the following: "Such provision (Article 23 (A) 4) would therefore
not apply where the state of source considers that it may tax an item of income or capital in accordance with the provisions of the Convention but where no tax is actually payable on such income or capital under the provisions ofthe domestic laws of the state of source. In such a case, the state of residence must exempt that item o.f income under the provisions of§ I because the exemption in the state ofsource does not result from the application of the provisions of the convention but rather from the domestic law ofthe state ofsource". 18 Thus, article 23§ 1 of the Treaty may not be considered as exhaustive and as a consequence the Treaty therefore allows the application of the method to eliminate double taxation under article 23§3a either in case of double taxation or in case of single taxation in the state of residence when the source country is entitled to levy tax in accordance with the Treaty but does not tax the income by application of its domestic law.
8 9
Cf. comments on Article 23 A of the OECD Model Convention Preparatory works n°1679, pages 34, 1933 and 1950
(8)
19 As a consequence of the above, based on the conclusion that the Irish Branch constitutes a permanent establishment and on the understanding of article 23§ 1 of the Treaty set out above, the right to tax the profits deriving from the activities of the Irish Branch will be granted to Ireland by virtue of article 6§ I of the Treaty and such profits will be exempt from any Luxembourg corporate tax and municipal business tax in Luxembourg by application of article 23§3a of the Treaty. Profits include any possible foreign exchange profits (or losses). 20 Consequently, corporate income tax and municipal business tax can only be levied on profits attributable to the Luxembourg company (i.e. LuxFinCo), since profits attributable to the Irish non-trading branch should be taxable in Jreland.
Net wealth tax 21 For net wealth tax purposes, article 22§2 of the Treaty states that assets consisting of movable property being part of a permanent establishment may only be taxed in the state where this permanent establishment is located. According to article 23§3a of the Treaty, those assets will be exempt in Luxembourg from net wealth tax. Consequently, no net wealth tax will be levied in Luxembourg on the Irish branch assets. 22 At the level of LuxFinCo, the Receivables held by latter towards LuxFinCo 2 will be subject to net wealth tax on its fair market value while the interest free debt (that corresponds mainly to the funds allocated to the Irish non-trading branch) will be deducted from the net wealth tax basis.
(9)
LE GOUVERNEMENT DU GRAND DUCHE DE LUXEMBOURG Admin1strJt1011 d'-. ~ontnbutions clirC?ctes Bureau d'imposition Societes 6
For the attention of Catherine Dupont PricewaterhouseCoopers 400, route d'Esch B.P. 1443 L - 1014 Luxembourg
Companies involved : Northern & Shell Luxembourg Sari - 2009 24 02445 11 November 2009
Dear Madam,
Further to your letter dated 11 November 2009 and reference CDT/NLKL/02709177M-CEQN relating to the transactions that the group Northern & Shell would like to conduct, I find the contents of said letter to be in compliance with current tax legislation and administrative practice.
It is understood that my above confirmation may only be used within the framework of the transactions contemplated by the abovementioned letter and that the principles described in your letter shall not apply ipso facto to other situations.
•
18, rue du Fort Wedell
Tel.: (352) 40.800-3118
Adresse postale
Site Internet
Luxembourg
Fax: (352) 40.800-3100
L-2982 Luxembourg
www.impotsdirects.public.lu
This document relates to the following request:
BUREAU D'IMPOSITION SOC. 6 ENTRE:E
11 November 2009
11
References: CDT/NLKL/Q27091 77M-CEQN
Client (Fiscal number): Northern & Shell Luxembourg Finance Sarl - 2009 24 02445
I. Key topics: Net Wealth Tax 2. Name of the advisor: PwC 3. Corporate group's name, or fund sponsor: Northern & Shell 4. Name of the project: Luxembourg Irish structure 5. Amount intended to be invested: GBP 826mio 6. Date of receipt:
1 1 NG V 2009
I
Priccwatcr houscCoopcrs Socictc a rcsponsabilitc limitcc Rcviscur d'cntrcpriscs 400, route d'Esch
For the attention of Mr Marius Kohl
Administration des Contributions Directes Bureau d' imposition Societes VI 18, Rue du Fort Wedell L-2982 Luxembourg
B.P. 1443 L-1014 Luxembourg Telephone+352 494848-1 Facsimile+352 494848-2900 www.pwc.com/lu
[email protected]
BUREAU D'IMPOSITION SOC. 6
ENTREE
11 November 2009 References: CDTIN LKL/Q2709 l 77M-CEQN
Northern & Shell Luxembourg Finance Sari - 2009 2402 445 Luxembourg Irish structure
Dear Mr Kohl, ln our capacity of tax consultant of the above-mentioned client, we discussed in our meeting dated 19 October 2009 the tax treatment applicable to the transactions foreseen by our client. This letter aims at confirming the conclusions reached during this meeting and will serve as a basis for the preparation of the tax returns of the Luxembourg Company involved.
A
Background 1.
We refer to our letter dated 11 February 2009 (referred CDT/CEQN/Q2709014M-MLFO) for the detailed description and tax analysis of the financing structure set up by the Northern & Shell Group (hereafter referred to as "Group") further to which intra-group receivables towards Northern & Shell Network Limited, Northern & Shell Pie, Northern & Shell Worldwide Limited and Express Newspapers (all together referred to as "Receivables") were transferred to LuxFinCo in exchange for an Intra-group Convertible Loan Note (hereafter referred to as "ICLN 1").
2
We also refer to our letter dated 24 June 2009 (referred CDT/NLKL/Q2709113M-FYHS), for the second financing structure decided by the Group further to the maturity of the above-mentioned ICLN 1 on 19 June 2009. Indeed, LuxFinCo established a Luxembourg subsidiary (hereafter referred to as "LuxFinCo 2") to which it transferred the Receivables it held in consideration for another Intra-group Convertible Loan Note (hereafter referred to as "ICLN 2") for an amount of approximately GBP 826m.
R.C.S. Luxembourg B 65 477 - TVA 1.U 17564447
3 It is now contemplated for LuxFinCo to set-up an Irish non-trading branch. 4
B
For your information, you will find enclosed the background information and the current abridged group structure (Appendix 1) as well as the contemplated transaction and the final abbreviated structure (Appendix 2). Finally, the proposed Luxembourg tax treatment is described in Appendix 3.
Applicable Tax Regime 5
LuxFinCo will close its accounts on 31 December. Its situation as at 31 December will be taken into consideration to detennine its unitary value for net wealth tax.
6
Based on the developments detailed in Appendix 3, the Irish non-trading branch should be treated as a "permanent establishment" of LuxFinCo in Ireland.
7
For the calculation of LuxFinCo's net wealth tax, funds allocated to its Irish non-trading branch will not be taken into consideration in accordance with article 22§2 and 23§3a of the tax treaty between Luxembourg and Ireland.
8 The GBP 826m Receivables recorded in the commercial accounts of LuxFinCo will be offset for determining the unitary value of the Luxembourg Company, by the GBP non-interest bearing debt owed to the Irish non-trading branch (that corresponds mainly to the funds allocated to the branch). 9
GBP is the functional cmTency of LuxFinCo for accounting and tax purposes. Accordingly, no foreign exchange differences should arise with respect to the financing from an accounting and tax perspective.
(2)
We remain at your disposal should you need any further information and would like to thank you for the attention that you will give to our request.
Yours sincerely,
Catherine Dupont Partner
Appendices: Appendix 1: Background information and current abridged group structure Appendix 2: Contemplated transactions and final abbreviated structure Appendix 3: Luxembourg tax treatment
711is tax agreeme11t is based on the facts as presented to PricewalerhouseCoopers Sari as at the date the ad11ice was given. 17ie agreement is dependent on specific/acts a11d circumstances and may not be appropriate to any party other than the one for which It was prepared. 771is tax agreeme/I/ was prepared with 011/y the interests ofNorthem & Shell in mind. and was 1101planned or carried out in contemplation of any use by any other party. Pricewaterho11seCoopers Sdrl, its parmers. employees and or agents, neither owe nor accept any duty of care or any respo11sibili1y 10 a11y other party. whether in co111rac1 or in tort (including without limitation. 11egllge11ce or breach ofstatutory duty} howe1•er arising. and shall not be liable i11 respect ofany loss. damage or experue ofwhatever nature which is caused to any other party.
(3)
Appendix 1 Background information and current abridged group structure Northern & Shell was founded in December 1974 and became an important player in the British and worldwide media. The group holds a broad portfolio of magazines and broadcast interests and acquired the Express Newspapers in November 2000. Today, Northern & Shell owns four national newspapers and is 50 per cent joint venture partner in two more newspapers in Eire. It also dominates important parts of the consumer magazine market in the UK and worldwide with 12 foreign editions, operates in all major areas of publishing and has diverse interest in television, print, distribution, investment and property.
RCD1
Convertible loan note - - - - - - - Forward subscription agreement Loan
N&S Network
Finance
I I
,,
---- --- --- ---
I I
'
Worldwide
Media
MH Express
Forward subscription
(4)
Appendix 2 Contemplated transactions and final abbreviated structure Contemplated transactions: Step 1: On 5 November 2009, LuxFinco set up an Irish non-trading branch with branch capital of around GBP equivalent of EUR 100,000.
Step 2: On [December], LuxFinCo will allocate GBP 823.Sm out of its total Receivables ofGBP 826m to its Irish non-trading branch as branch capital.
Step 3: On the same day, LuxFinCo's Irish non-trading branch will lend back GBP 823.Sm receivables to LuxFinCo in consideration for a GBP 823.Sm interest free loan.
Final abbreviated structure:
RCD1
Convertible loan note - - - - - - - Forward subscription agreement Loan
N&S Network
Finance
, I I
,'
IFL£823.5m
---- --- ---
__ ,
,,
,
Worldwide
Media
MH
I
Express
Forward subscription
(5)
Appendix 3 Luxembourg technical tax analysis Double tax treaty concluded between Luxembourg and Ireland 1
According to the information we have at our disposal, Lux FinCo is a Luxembourg tax resident company according to article 159 LITL and according to article 3§1 (g) and (h) of the tax treaty concluded between Luxembourg and Ireland (hereafter referred as the Treaty).
2
From a Luxembourg tax perspective, the tax treatment of the Irish branch will depend on its substance. The Irish branch is considered to be a non-trading branch in [reland.
3
In this respect, the branch will have: • • • • • •
an office space and an Irish address, all necessary material to carry out its activities (i.e., desk, fax, etc.), a company name which will be displayed at the premises, a telephone number which will be listed in the public phonebook, its own bank account, separate accounting records.
4
At least one manager will be appointed. This manager will be in charge of the daily management of the Irish branch. He will, among others, assist with the lending of funds and manage the loan to LuxFinCo.
5
The branch will be managed and controlled only in Ireland by its own Irish manager who will also be the branch's employee. All decisions pertaining to the business of the branch will be taken in Ireland. The permanent establishment will have the authority to conclude contracts in the name of the company and the signatory authority on the bank account of the company.
6
Moreover, the following documents will be retained in Ireland and made available upon request: • •
• • • • • • •
the minutes of the board meeting of LuxFinCo creating the Irish non-trading branch and allocating funds to the latter; the minutes of the board meeting of LuxFinCo appointing the Irish non-trading branch manager and any subsequent minutes of board meeting in relation with the bran.ch; a copy of the rental agreement for the office space; a copy of a contract for an own telephone number; a copy of the branch management a&rreement; a copy of the payrolls of the branch; a copy of the registration deed in Ireland; a copy of the contract for a local Irish bank account; a copy of the registration deed in Ireland (or a substitute). (6)
7
In view of the aforementioned local substance in Ireland, the Irish non-trading branch will be qualified as a ''permanent establishment" of LuxFinCo in Ireland, as defined in article 4 of the Treaty.
Tax treatment of income realized by the Irish permanent establishment 8
According to article 6§1 of the Lux-Irish Treaty (in this section referred to as 'the Treaty'), the business profits attributable to an Irish permanent establishment of a Luxembourg company may be taxed in Ireland.
9
Moreover, article 23 of the Treaty provides for methods to eliminate double taxation. Article 23§3 (a) of the Treaty stipulates that where a Luxembourg resident derives income, which in accordance with the Treaty may be taxed in Ireland, such income shall be exempt from tax in Luxembourg. Article 23§ 1 Lux-Irish Treaty, however, subjects the exemption provided by article 23§3 (a) to the condition that the income to be exempted in Luxembourg has been "subject to tax" in Ireland (French wording: ''passible de l 'imp6t").
10 Article 23§1 of the Treaty in its French version does not provide for a subject to tax condition but merely to a "may be subject to tax" condition. Indeed, the French version 1 of the Treaty is clear concerning article 23§ 1 of the Treaty, whereas the English version2 could give rise to some doubts concerning the notion of "subject to tax". 11 Since, in case of doubt, both texts are equally authoritative, reference should be made to other sources. Article 23 of the Treaty is based on the OECD Model Convention3 ('the Convention'). As a consequence the interpretation in case of doubt should he inspired by the Convention and its official comments 4 • 12 In this respect, it should be noted that the Convention in French is similar to the French version of the Treaty5, whereas the English version of the Treaty does not use the same wording as the Convention6. The comments of the draft bill do not mention an intention of the parties not to follow the Convention, whereas it is mentioned for other articles when it is the case7.
1
The French version Jays down that "lorsqu 'un revenu est possible de l 'imp6t dans /es deux etats contractants ... ", which can be translated by "where an income may be taxed". 2 The English version Jays down that "where income is subject to tax". 3 Preparatory works 0°1679, pages 34, 1933 and 1950 4 Preparatory works n°1679, pages 34 and 1933 5 The French version of the Treaty uses "passible de l'impot" and the French version of the Convention uses "imposable". 6 The Treaty mentions "subject to tax", whereas the Convention mentions "may be taxable". 7 E.g articles 18 and 20, cf page 1935 of the Preparatory work n° 1679.
(7)
13 Furthermore, the Convention does not usually require "an effective taxation" of income as a condition for the application of an exemption. As a consequence, article 23§1 of the Treaty should not be viewed as requiring an effective taxation but rather and only as referring to the right to tax that both countries have8. Moreover, this analysis of article 23§ l is consistent with all paragraphs of article 23.
14 Notwithstanding the above analysis, and complementarily, even in case a doubt would remain with respect to the interpretation of the English version of article 23 § l of the Treaty, such doubt would disappear in the light of the general interpretation of the Convention and official commentaries thereof. 9
15 As mentioned above, the comments of the draft bill do mention that the Treaty follows in principle the Convention. 16 For the purpose of this interpretation, it has to be noted that a new anti-abuse provision was included in the Convention in 2000. New article 23 A paragraph 4 of the Convention provides that the exemption method for elimination of double taxation, provided by article 23 A paragraph 1, will not apply if the income is exempt from tax in the source country by application of the provisions of the Convention itself. In the case at hand, this would mean that Luxembourg could not exempt the income from tax if Ireland exempts this income from tax by application of the Convention. 17 The official commentaries to the Convention (Comment C(23) (24) point 56.2) expressly provide for the following: "Such provision (Article 23 (A) 4) would therefore
not apply where the state of source considers that it may tax an item of income or capital in accordance with the provisions of the Convention but where no tax is actually payable on such income or capital under the provisions ofthe domestic laws of the state of source. In such a case, the state of residence must exempt that item o.f income under the provisions of§ I because the exemption in the state ofsource does not result from the application of the provisions of the convention but rather from the domestic law ofthe state ofsource". 18 Thus, article 23§ 1 of the Treaty may not be considered as exhaustive and as a consequence the Treaty therefore allows the application of the method to eliminate double taxation under article 23§3a either in case of double taxation or in case of single taxation in the state of residence when the source country is entitled to levy tax in accordance with the Treaty but does not tax the income by application of its domestic law.
8 9
Cf. comments on Article 23 A of the OECD Model Convention Preparatory works n°1679, pages 34, 1933 and 1950
(8)
19 As a consequence of the above, based on the conclusion that the Irish Branch constitutes a permanent establishment and on the understanding of article 23§ 1 of the Treaty set out above, the right to tax the profits deriving from the activities of the Irish Branch will be granted to Ireland by virtue of article 6§ I of the Treaty and such profits will be exempt from any Luxembourg corporate tax and municipal business tax in Luxembourg by application of article 23§3a of the Treaty. Profits include any possible foreign exchange profits (or losses). 20 Consequently, corporate income tax and municipal business tax can only be levied on profits attributable to the Luxembourg company (i.e. LuxFinCo), since profits attributable to the Irish non-trading branch should be taxable in Jreland.
Net wealth tax 21 For net wealth tax purposes, article 22§2 of the Treaty states that assets consisting of movable property being part of a permanent establishment may only be taxed in the state where this permanent establishment is located. According to article 23§3a of the Treaty, those assets will be exempt in Luxembourg from net wealth tax. Consequently, no net wealth tax will be levied in Luxembourg on the Irish branch assets. 22 At the level of LuxFinCo, the Receivables held by latter towards LuxFinCo 2 will be subject to net wealth tax on its fair market value while the interest free debt (that corresponds mainly to the funds allocated to the Irish non-trading branch) will be deducted from the net wealth tax basis.
(9)
LE GOUVERNEMENT DU GRAND DUCHE DE LUXEMBOURG Admin1strJt1011 d'-. ~ontnbutions clirC?ctes Bureau d'imposition Societes 6
For the attention of Catherine Dupont PricewaterhouseCoopers 400, route d'Esch B.P. 1443 L - 1014 Luxembourg
Companies involved : Northern & Shell Luxembourg Sari - 2009 24 02445 11 November 2009
Dear Madam,
Further to your letter dated 11 November 2009 and reference CDT/NLKL/02709177M-CEQN relating to the transactions that the group Northern & Shell would like to conduct, I find the contents of said letter to be in compliance with current tax legislation and administrative practice.
It is understood that my above confirmation may only be used within the framework of the transactions contemplated by the abovementioned letter and that the principles described in your letter shall not apply ipso facto to other situations.
•
18, rue du Fort Wedell
Tel.: (352) 40.800-3118
Adresse postale
Site Internet
Luxembourg
Fax: (352) 40.800-3100
L-2982 Luxembourg
www.impotsdirects.public.lu
