By Danny Beeton, Of Counsel, Arendt & Medernach, Luxembourg and London
Luxembourg has adopted new tax laws implementing its 2020 budget proposals, including provisions designed to curtail tax avoidance through hybrid mismatches and improve tax dispute resolution. The new provisions also abolish older private tax rulings.
These laws were published in Luxembourg’s Official Gazette on 20 December 2019.
The new tax measures will apply to financial years starting 1 January 2020 except for the rules on reverse hybrids, which will apply 1 January 2022. They amend Article 168ter of the Luxembourg Income Tax Law (LITL) and implement a new article 168quater LITL.
Luxembourg hybrid mismatch
Luxembourg’s new hybrid mismatch rules, required by the EU anti-tax avoidance directive, as amended (ATAD2), include specific measures to address unintended consequences for investment funds.
In particular, the “acting together” concept should not apply to an investor that holds directly or indirectly less than 10% of the interest of the fund and which is entitled to less than 10% of the profits of this fund.
In addition, most collective investment funds should be excluded from the reverse hybrid rule.
Tax dispute resolution
The new tax dispute resolution mechanism also implements an EU directive, applying when a dispute arises between Luxembourg and one or several EU Member States in relation to the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and capital.
This mechanism can be invoked by taxpayers for any tax dispute concerning income or capital earned in a fiscal year commencing on or after 1 January 2018.
Expiration of Luxembourg tax rulings
As previously discussed, the publication of the new laws in Luxembourg’s Official Gazette also means that all advance pricing agreements and other advance tax confirmations (so-called tax rulings) granted by the Luxembourg tax authorities before 1 January 2015 will cease to be binding on the Luxembourg tax authorities at the end of 2019.
– Danny Beeton is Of Counsel at Arendt & Medernach, Luxembourg and London.
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