Multilateral Instrument: Bill Of Law

On 7 June 2017, Luxembourg together with 67 other jurisdictions, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS ("Multilateral Instrument" or "MLI"). One of the main purposes of the MLI is to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises by transposing the results from the BEPS project into more than 2,000 tax treaties worldwide.

On 3 July 2018, the Luxembourg Government submitted Bill of Law 7333 approving the MLI to the Luxembourg Parliament.

All 81 tax treaties concluded by Luxembourg that are currently in force (including the new treaty with Senegal) are designated as "Covered Tax Agreements" ("CTAs"). However, the extent to which these CTAs will be amended as a result of the MLI will depend on whether or not the other contracting state signed the MLI and on the reservations and options taken by the signatory contracting state.

The MLI contains agreed minimum standards to counter treaty abuse (BEPS Action 6) and to improve dispute resolution mechanisms (BEPS Action 14). It also contains a number of alternatives or optional provisions that will generally apply only if all contracting states to a CTA have chosen to apply that particular alternative or option.

Minimum Standards

Certain provisions of the MLI are mandatory as they were agreed by consensus and reflected in the BEPS report as minimum standards - notably on treaty abuse and dispute resolution.

To meet the BEPS minimum standard on treaty abuse, Luxembourg has opted to apply the principal purpose test ("PPT") to all its CTAs instead of (i) the detailed limitation of benefits ("LOB") provision or (ii) a combination of the PPT with a simplified LOB provision. According to the PPT, a benefit under a CTA shall not be granted if it is reasonable to conclude that one of the principal purposes of the arrangement or transaction is to obtain that treaty benefit, unless it can be established that granting that benefit in these circumstances is in accordance with the object and purpose of the relevant CTA. Where the other contracting state has not opted for the PPT, but for a detailed LOB provision, the MLI would not result in a direct change of the relevant CTA and the two states shall endeavour to reach a mutually satisfactory solution that meets the BEPS minimum standard.

With respect to dispute resolutions, Luxembourg has chosen to express no reservation and to apply the provisions of...

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