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ATAD in Luxembourg, let’s get started!

10 Janvier 2019 Par Gérard Neiens; Jean-Philippe Monmousseau; Pierre-Luc Wolff
Jean-Philippe Monmousseau; Gérard Neiens; Pierre-Luc Wolff. (Photo: Hogan Lovells )

Recently, we explained the consequences of the ATAD implementation in Luxembourg based on the draft law. Now, as it is in force in Luxembourg, let’s make sure you’re ready for its outcomes.

  

  

 

 

 

  

  What’s in it?

When will it be applicable?

It is applicable since 1 January 2019, except for the exit tax provisions applicable as of 1 January 2020. Hence, are you ready?

Anti-tax avoidance rules:

Below are all the rules at a glance:

 

You want to have a general overview; please check out here.

You are more interested in a detailed description on a specific matter; please check out our blog articles available for each anti-tax avoidance measure by simply clicking on its item below.

What’s to come in 2019?

Two important amendments/clarifications are to be expected in 2019 as regards the interest deduction limitation rules (the “IDLR”):

  • Contrary to the current legislation, apply (expected retroactively as of 1 January 2019) the IDLR to Luxembourg taxpayers in a tax unity on a consolidated basis (otherwise, the negative effects for such taxpayers may indeed be important). Pierre Gramegna agreed on the principle, and the Luxembourg government should submit in this respect a draft law in 2019.
  • Verify the impacts of the IDLR on the approximate 1,200 Luxembourg securitisation vehicles. Indeed, these vehicles are not per se excluded from such rule and their impacts are currently not behind doubt. Pierre Gramegna promised that the Luxembourg government will have a closer look at this issue in 2019 and provide potentially further clarifications.

Are there additional measures we should be aware of?

  • Permanent establishment concept

The definition of permanent establishment under Luxembourg domestic tax law has been reinforced when it is established in a country with which Luxembourg has signed a double tax treaty (“DTT”). The aim is to avoid double non-taxation situations resulting from different interpretations of the notion of permanent establishment by the relevant countries.

A permanent establishment is to be construed solely on the basis of the criteria mentioned by the relevant DTT, and except if provided otherwise therein, a permanent establishment will only be considered to exist if its activity, considered by itself, forms an independent activity and represents a participation in the general economic life in that other country.

Depending on the scenarios, a taxpayer either may be requested on demand or must provide a confirmation that the other country recognises the existence of its permanent establishment.

You want to have further information; please click here.

  • Abolition of tax neutral conversion of debt to equity

The legal basis which allowed the tax neutrality upon a conversion of a debt into shares has been abolished. Indeed, this provision, as previously drafted, was likely to result in situations of deduction without corresponding inclusion. As a consequence, these conversions are henceforth considered from a tax perspective as a disposal of the convertible loan at fair market value followed by the acquisition of shares at fair market value. Any latent capital gains that might occur during this conversion may no longer be rolled over into the shares received in exchange, but are considered from a tax perspective as being realized and will thus have to be taxed accordingly at the time of conversion.

 

Have a question regarding your tax situation as regards the above? Contact our tax team for further information.