Luxembourg plans to deny tax deductions for interest and royalties owed to related enterprises in blacklisted jurisdictions
On 25 March 2020, the government adopted a bill of law, which is not yet published, that denies tax deductions for interest and royalties owed to related enterprises established in a jurisdiction mentioned on the EU blacklist. There is no mention in the government’s press release of changes for net wealth tax or withholding tax purposes.
Luxembourg taxpayers are currently only under the obligation to notify in their tax returns the intercompany transactions with EU blacklisted jurisdictions. As of today, the EU blacklist is composed of twelve jurisdictions. The Cayman Islands were added to the EU blacklist in February 2020. The next review of the list is scheduled for October 2020.
The proposed bill of law follows the 5 December 2019 ECOFIN conclusions inviting all EU Member States to apply tax defensive measures vis-à-vis the EU blacklisted jurisdictions as from 1 January 2021. Luxembourg taxpayers who owe interest or royalties to a related enterprise situated in American Samoa, the Cayman Islands, Fiji, Guam, Oman, Palau, Panama, Samoa, Trinidad and Tobago, the U.S. Virgin Islands, Vanuatu or the Seychelles will likely be affected by this new bill of law.
We will share with you further details once the bill of law is published. We expect that the publication will clarify, amongst others, the concept of related enterprise, whether payments to tax transparent entities in blacklisted jurisdictions are caught and whether deductions resulting from transfer pricing adjustments are impacted.
Should you have questions in the meantime, please contact your trusted Loyens & Loeff advisor.
Frank van KuijkPartner Tax Adviser / Attorney at Law / Avocat
Frank van Kuijk, partner, is a member of our Investment Management and Tax practice groups in our Luxembourg office. He focuses on the structuring and regulatory work for alternative investment fund managers. Within the Investment Management Practice Frank heads the tax team integrated therein.T: +352 466 230 330 E: firstname.lastname@example.org
Jochem van der WalPartner Attorney at law / Tax adviser
Jochem van der Wal, attorney at law and tax adviser, is a partner in the Tax Practice Group of our Luxembourg office. He focuses on general Luxembourg and international tax matters.T: +31 20 578 52 34 / +352 466 230 235 E: email@example.com
Pierre-Antoine KlethiSenior Associate Attorney at law / Avocat / Tax Adviser
Pierre-Antoine Klethi, senior associate, is a member of the Tax and Investment Management Practice Groups in our Luxembourg office. He focuses on corporate taxation (including relevant international developments), fund structuring and EU State Aid investigations.T: +352 466 230 429 E: firstname.lastname@example.org