On 20 June 2018, the draft law implementing the EU Anti-Tax Avoidance Directive (ATAD) was released. While the main purpose of the draft law is to implement ATAD, it is worth noting that it also includes two additional BEPS-related tax changes aiming at removing potential double non-taxation situations. ATOZ, Taxand Luxembourg, gives an overview of the tax measures provided in the draft law. However, the proposed rules may still evolve throughout the legislative process.
Background of the upcoming tax changes
The aim of ATAD is to implement at EU level the BEPS (Base Erosion and Profit Shifting) recommendations made by the OECD and the G20 in October 2015. ATAD lays down anti-tax avoidance rules in the following fields:
While some of the anti-avoidance rules included in ATAD do not leave any flexibility to EU Member States (MS) when implementing them, other rules provide alternative options and/or allow EU MS to limit their scope of application. Keeping in mind the continuous increase of direct tax harmonisation within the EU, it was important that Luxembourg make the right choices each time ATAD left EU MS some leeway and options so as to remain competitive in the post BEPS environment.
Overall, Luxembourg has made the right choices and used all options provided by ATAD in order to remain competitive. However, on some aspects the Luxembourg government took positions which are even stricter than ATAD: instead of having all anti-hybrid mismatch rules (i.e. those within the EU and those with third countries becoming applicable as from 2020), the Luxembourg government has decided to have the ones applicable within the EU apply as early as from 1 January 2019.