Essential tax insights: Key takeaways from EY Luxembourg's Asset Servicers Roundtable

On November 14, 2024, EY Luxembourg hosted the Asset Servicers Tax Roundtable, a pivotal event that brought together tax experts and industry leaders to discuss pressing tax issues, regulatory updates, compliance challenges, and emerging trends. The purpose of this event was to address, in real-time, the challenges that this sector may encounter and to help participants stay continuously updated. The event kicked off with an introduction by Dan Zandona, Tax Partner and Asset Servicing Tax Leader, and was followed by a series of sessions addressing key tax issues. This roundtable saw participation from members of large and medium-sized asset servicers, as well as new members, fostering a diverse and inclusive discussion environment.

Transfer pricing and public Country-by-Country Reporting (CbCR)

Eduardo Medina, Partner specializing in transfer pricing, emphasized the critical importance of adhering to the new Public CbCR regulations. These regulations mandate that multinational enterprises (MNEs) with consolidated revenues of EUR 750 million or more disclose specific tax-related information, including income taxes paid, in public business registers and on their websites. Eduardo highlighted the complexities and risks associated with CbCR implementation, such as potential misinterpretations and the need for significant process changes. He also noted the increased scrutiny on transfer pricing audits in Luxembourg, with a rise in queries on transfer pricing documentation from the Luxembourg Tax Authorities (LTA). Engaging with clients on these topics is essential to navigate the potential impacts and risks posed to businesses. Participants openly shared their experiences, fostering a collaborative environment for tackling these challenges.

Recent court cases and tax law updates

Hélène Crepin, Tax Partner and Tax Controversy Leader, provided valuable updates on recent court cases and tax law changes. She underscored the personal liability of legal representatives for fulfilling tax obligations and the severe consequences of non-compliance. Hélène focused on issues related to the failure to declare and pay withholding tax on salaries, late filing of tax returns, non-payment of Corporate Income Tax (CIT), Municipal Business Tax (MBT), and Net Wealth Tax (NWT), and hidden distributions due to private expenses paid by companies. Her insights highlighted the importance of diligent tax compliance and the potential legal ramifications of neglecting tax obligations. The discussion underscored the need for businesses to stay vigilant and proactive in their tax practices to avoid legal pitfalls.

Operational taxes, Pillar Two, Investment Tax Credit (ITC) and AEOI

Marie-Sophie Hélier, Tax Partner, along with Nicolas Volfart, Senior Manager, Operational Tax, and Dan Zandona, led the "Fast and Curious" session, covering updates on operational taxes and the Investment Tax Credit (ITC). The discussion included a status update on the Pillar Two Law and the compliance requirements due by June 2026. These requirements encompass registration/notification, global information return, and minimum tax returns and payments by Luxembourg in-scope entities under this regulation.

On the automatic exchange of information (AEOI), three topics were discussed:

• The new process of GIIN registration from the IRS portal: A pragmatic approach to managing the new process was highlighted, along with its pros and cons.
• FATCA/CRS audits and on-site visits from tax authorities: Participants discussed the practical challenges and solutions for meeting compliance requirements, emphasizing the need for robust systems and processes to manage operational taxes effectively.
• Post-reporting season: Key challenges related to the reporting for FY2023, the CRS notification, and the treatment of late reporting were discussed.

Artificial intelligence governance

In a departure from traditional tax topics, Abdelhay Toudma, Partner in Technology Consulting, and specialist in Cyber and Digital Risk, presented on AI Governance and the EU AI Act. Findings from EY’s CEO Outlook Pulse survey revealed that while 65% of CEOs view AI as a positive force and plan significant investments, 67% expressed concerns about ethical implications, misuse, and unintended consequences of AI. Abdelhay outlined the various AI risks, the benefits of AI governance, and the importance of aligning AI strategy with business strategy. He emphasized the need for ethical AI deployment and compliance with the EU AI Act to mitigate risks and harness the full potential of AI technologies. Although AI is not traditionally a tax-related topic, its inclusion was well-received, highlighting the role AI has to play in tax transformation and the broader business landscape.

Conclusion

The asset servicing sector encompasses a range of services aimed at managing and administering investment portfolios. These services are crucial for the efficient operation and management of investment assets and include fund administration, transfer agency, performance measurement and analytics, compliance and regulatory reporting, and tax services. The asset servicing sector plays a vital role in the financial industry by providing the infrastructure and support needed for the effective management of investment assets. This allows institutional investors to focus on their core investment strategies while ensuring that their portfolios are managed efficiently and in compliance with regulatory requirements.

The Asset Servicers Tax Roundtable held by EY Luxembourg provided a comprehensive overview of the current tax landscape, emphasizing the importance of compliance, risk management, and strategic alignment. As tax regulations continue to evolve, staying informed and proactive is essential for businesses to navigate complexities and ensure sustainable growth. The event highlighted the need for asset servicers and their clients to understand and adapt to regulatory changes, ultimately contributing to a more robust and compliant market environment. On a quarterly basis, industry members and experts from the asset servicing sector convene for these tax roundtables, ensuring continuous engagement and up-to-date knowledge sharing.