Luxembourg Starts The Implementation Of ATAD 2

On 8 August, the draft law (the "draft law") implementing the EU Directive 2017/952 of 29 May 2017 ("ATAD 2") amending Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (the so-called Anti-Tax-Avoidance-Directive, "ATAD") was presented to Parliament. ATAD already included measures dealing with hybrid mismatches in an EU context, which have applied in Luxembourg since 1 January 2019 based on Article 168ter of the Income Tax Law. ATAD 2 replaces these rules and extends their scope, notably to transactions involving non-EU countries.

In this ATOZ Alert, we give an overview of the new measures which will enter into force as from 1 January 2020 (apart from the measure on "reverse hybrid mismatches", which will apply as from 2022).

Background

ATAD 2 follows the recommendations of the OECD in regard to Action 2 (Hybrid mismatch arrangements) of the Base Erosion and Profit Shifting (BEPS) project and covers a number of hybrid mismatches such as financial instrument mismatches, hybrid entity mismatches, reverse hybrid mismatches and permanent establishment mismatches.

In general, a hybrid mismatch structure is a structure where a financial instrument, an...