Luxembourg 2019 budget in force as of 1 May 2019, MLI in force as of 1 August 2019
Two important laws are now ready to enter into force: the 2019 budget law and the ratified MLI .
Luxembourg’s 2019 budget law
Luxembourg’s 2019 budget law was approved by parliament on 25 April and published in the Official Journal of 26 April. It will become applicable as of 1 May 2019, with some provisions applicable from 1 January 2019.
For companies, the new budget includes a reduction of the corporate tax rate (applicable for taxable years closed on or after 1 January 2019) as well as a rule for tax-integrated groups in connection with the ATAD interest expense deduction limitation rule (applicable for taxable years beginning on or after 1 January 2019). This is compliant with the commitment expressed when the directive transposing the EU Anti-Tax Avoidance Directive (ATAD I) into domestic law was voted through last December. The specific interest limitation rule for tax-integrated groups will apply automatically for all tax unities. However, companies that prefer to apply it on a standalone basis will need to request it at the time of filing the joint request for the tax unity. For the existing tax unities, the option to apply limitation of interest deductibility to each member separately will require filing a dedicated joint request before the end of the first financial year for which the interest limitation rules apply (i.e. the tax year beginning on or after 1 January 2019).
The Multilateral Instrument (MLI) is a multilateral tax convention developed to implement changes to tax treaties under some BEPS actions. To date, 87 jurisdictions have signed the MLI and 25 have already ratified the convention and deposited their ratification, acceptance, or approval instruments with the OECD.
Even though signing jurisdictions have already provided provisional lists of reservations and notifications at the time of signature of the MLI, the final list of reservations and covered tax treaties is submitted only upon depositing the ratification instrument with the OECD (and therefore subject to change until the deposit of ratification instrument).
MLI itself became applicable as of 1 January 2019 for the first ratifying countries and should become applicable for most signing countries as of the taxable year 2020 or 2021. Since the MLI does not replace existing tax treaties, but is applied alongside a bilateral tax treaty and functions as an addition, modifying the treaty content on the application of BEPS issues, several conditions must be fulfilled for the specific MLI provision to apply to a specific treaty.
For the MLI changes to become effectively applicable to a bilateral tax treaty, it should be verified whether and when both parties have ratified the MLI, to establish when it comes into effect and when the final provisions become effective for the treaty at hand. Therefore, it is important to remember that for each bilateral tax treaty potentially modified by the MLI, its application needs to be analysed on a case-by-case basis.
In addition, although the date of entry into force of the MLI for a bilateral tax treaty chosen would always be the same (i.e. the latest of the dates of entry into force for the parties to that bilateral tax treaty), dates when MLI becomes effectively applicable can differ between the parties to a bilateral tax treaty subject to their individual choices and the type of tax.
MLI ratified in Luxembourg
On 9 April 2019, Luxembourg deposited its instrument of ratification for MLI. Luxembourg’s definitive list of reservations and notifications to the MLI (i.e. its MLI position, available in French only) identifies 81 tax treaties that it wishes to be covered by the convention.
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