Crucial Tax perspectives: key highlights from EY Luxembourg's February 2025 Asset servicers roundtable

On 4 February 2025, EY Luxembourg hosted the Asset Servicers Tax Roundtable, bringing together tax professionals and industry experts to discuss the latest tax developments, compliance obligations, and regulatory updates affecting asset servicers. This edition focused on key areas such as personal tax, VAT updates, legal and compliance challenges, and the growing impact of ESG considerations in tax governance.

Insights from Olivier Lambert, Partner, Indirect Tax Leader, EY Luxembourg

Further to the decision on 22 November 2024 of the Luxembourg first-tier Court, confirming the decision from the CJEU in the so-called “TP Case” (Case C-288/22 dated December 21, 2023), Luxembourg VAT authorities released Circular 781-2 confirming that VAT should not apply to directors’ fees when no economic risk is borne by the director. These decisions are leading to a broad regularization process, allowing impacted directors to reclaim VAT they had previously charged to their customers. The repercussions are particularly significant in the private equity and financial sectors, where accumulated VAT costs by the customers can be substantial. Despite the Circular, the scope of the regularization remains unclear in particular situations and a case-by-case analysis has to be done by the directors and their customers.

The digitalization of tax compliance will continue to reshape Luxembourg’s regulatory landscape, particularly with the upcoming implementation of VAT in the Digital Age (ViDA) through Europe. While Luxembourg has not yet published any regulation in that matter, the EU Parliament has recently validated the program and fixed 2030 as a deadline for the e-invoicing and e-reporting adoption in all the EU countries and for EU cross-border transactions. Luxembourg businesses operating across multiple jurisdictions may face earlier compliance obligations while local e-invoicing regulations are implemented step-by-step. Businesses need to act now to prepare for the transition. The upcoming reforms emphasize the growing need for automation and digital transformation in tax governance, reducing reliance on manual filings and ensuring more robust compliance tracking.

Insights from Dan Zandona, Partner, Asset Servicing Tax Leader, EY Luxembourg

DAC8 applies to all service providers facilitating transactions in crypto-assets for EU customers, with the goal of enhancing the legislative framework by broadening the scope of due diligence and reporting obligations. 

However, DAC8 is also amending DAC 2 (CRS) by requiring Reporting Financial Institutions (RFIs) to provide additional details in their CRS reports. This includes specifying whether an account is a Pre-existing or New Account, whether a valid self-certification has been obtained, identifying joint accounts, detailing the type of financial account, and outlining the role of Controlling Person.

To comply with these new requirements, RFIs must adapt their client onboarding processes, including Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures. This also entails reviewing and reconciling data from existing account holders, updating reporting tools, and ensuring that all resources involved in the CRS process are informed and trained on the new obligations. 

As more information about account holders will be exchanged, RFIs and asset servicers should also be prepared for audits or questions from tax authorities, which will be better equipped to scrutinize compliance.

Insights from Raluca Silaghi, Partner, EY Law Luxembourg

Beyond DAC8, Luxembourg’s legal framework continues to evolve with the long-awaited transposition of the Mobility Directive, streamlining EU cross-border transactions (mergers, divisions and conversions). In line with Directive, the law will amend the Company Law by introducing new measures, among others, the withdrawal rights for minority shareholders opposing the transaction and extended reporting obligations for the management. Further on, the overall implementation timeline will be lengthier as notaries are granted a three-month term to review the legality of the transaction and the possibility to ask for an additional term of three months should they need more information to fulfill their duties. Therefore, early preparation and calendarization will be crucial for restructuring operations between companies located in the EU.

Insights from Hélène Crépin, Partner, Tax Controversy, EY Luxembourg

Another key discussion point was the increasing scrutiny from the Administration des Contributions Directes (ACD). With closer collaboration between the ACD and the Commission de Surveillance du Secteur Financier (CSSF), companies should be aware that tax authorities and the CSSF may now exchange information that is necessary for the exercise of their respective missions, in particular with respect to the communication of information under the law relating to the Common Reporting Standard and the law relating to FATCA. This measure allows to verify the coherence of the information provided by entities under the supervision of the CSSF to this institution and to the ACD. This also means that any inconsistencies between regulatory filings and tax declarations could raise red flags, leading to potential audits or investigations.

Insights from Christian Mertesdorf, Global Compliance & Reporting (GCR) Partner, EY Luxembourg

Luxembourg’s move towards digitalized tax compliance is evident in the compressed tax return timeline for 2025. Businesses will have a shorter window between the publication of tax forms in April and the filing deadline at the end of the year, placing additional pressure on compliance teams. The reliance on technology and automation will be critical in managing tax obligations effectively. Historical filing patterns indicate that December remains the peak submission period, underscoring the need for better workflow distribution and proactive data collection. As tax authorities push for increased digitization, businesses must adapt by refining internal processes and investing in digital compliance tools.

Insights from Jean-Bernard Dussert, Transfer Pricing Partner, ESG Tax Leader & Anna Illarionova, Consulting Senior Manager, ESG Services, EY Luxembourg

Sustainability is no longer just a regulatory obligation – it is becoming a fundamental aspect of tax and corporate governance. The new investment tax credit scheme in Luxembourg is designed to further stimulate ESG investments by providing significant tax benefits to eligible projects focusing on digital transformation or environmental and ecological transition. These projects could benefit from a revised tax credit of 18% reducing their tax payable that creates additional incentives for the enterprises that create long-term sustainable value.

On another note, on 26 February 2025, the EU Commission published the first Omnibus Package (the Simplification Package) which aims to simplify the sustainability reporting framework aligning requirements among Corporate Sustainability Reporting Directive (CSRD), EU Taxonomy and Corporate Due Diligence Directive (CS3D). This initiative will review the scope of companies that would report on ESG-related material aspects as climate change, people, communities, ethics and governance. At the same time, the Sustainable Finance Disclosure Regulation (SFDR) continues to evolve, introducing stricter fund naming guidelines and mandating at least 80% of assets in sustainable funds to meet ESG objectives. This places asset managers under pressure to ensure alignment between fund strategies supported by reliable ESG data and simplified reporting obligations for the underlying companies.

Finance leaders recognize the increasing complexity of ESG integration. The role of CFOs is changing, as investors expect them to have a stronger hand in value creation and balancing long-term success with the executive team’s pressure for short-term results. These increased demands also reflect a growing need to access expertise from outside the organizations. While ESG compliance has become a priority, many firms remain in a minimum compliance mindset, focusing on regulatory adherence rather than proactive ESG integration. Moreover, the adoption of digital solutions including AI for ESG reporting still remains surprisingly low, highlighting a gap between regulatory expectations and current market practices. To stay ahead, firms must transition from reactive compliance to a more strategic ESG approach, embedding sustainability into their tax and financial planning processes.