Luxembourg 2020 Budget Law Introducing New Tax Measures And Law Implementing ATAD II Passed

Today, the budget law for 2020 and the law implementing into domestic law Council Directive (EU) 2017/952 of 29 May 2017 ("ATAD II") have been passed by the Luxembourg Parliament.

All tax measures are essentially identical to the draft provisions as proposed by the Luxembourg government. For more details on the bills submitted to the Luxembourg Parliament, please refer to our newsflash ATAD II implementation in Luxembourg and our newsflash Budget 2020. As for the latter in particular, there are no essential changes to the sun-setting rule concerning pre-2015 advance tax confirmations, i.e. immediate action by taxpayers may be required.

Law implementing ATAD II

Today, the Luxembourg Parliament has passed the law implementing ATAD II. The new measures, which amend Article 168ter of the Luxembourg Income Tax Law ("LITL") and implement a new article 168quater LITL, will apply to financial years starting as from 1 January 2020 except for the rules on reverse hybrids which will apply as from 1 January 2022.

The final text is essentially identical to the draft provisions proposed by the Luxembourg government and does not generally take into account the modifications proposed by the Chamber of Commerce. With respect to the comments made by the State Council, the following proposed modifications have been taken into account:

the term "entity", which is notably used to determine whether there is an associated enterprise, is now specifically defined for the purpose of the rule as including any entities as defined in Articles 159 (basically, tax resident collective entities), 160 (non-tax resident entities realising taxable income in Luxembourg) and 175 (tax transparent entities) of the LITL; the text concerning the application of the anti-hybrid rule that is included in the Luxembourg participation exemption rule (Article 166 LITL) in priority to the new anti-hybrid rule has been clarified; the text of Article 168quater on reverse hybrids has been amended to clarify that only the share of income that falls in the scope of the rule will be subject to corporate income tax in Luxembourg (i.e. not all income arising to the Luxembourg reverse hybrid). The specific measures that have been introduced to address the unintended consequences for investment funds remain unchanged (in particular, the acting together concept which in principle does not apply to an investor that holds directly or indirectly less than 10% in the interest of the fund and that is...