New government: what are the consequences on the tax policy and implementation of ATAD in Luxembourg?
The new government appointed in late 2018 includes in its policy program the decrease of the corporate tax rate by one percentage point in 2019. They also proposed amendments to the pending bill of law implementing ATAD.
Its policy program for the coming years includes, on the tax side, a further decrease of the Luxembourg corporate tax rate with one percentage point. The previous day, the Luxembourg government also proposed amendments to the currently pending bill of law implementing the EU Anti-Tax Avoidance Directive (ATAD) in Luxembourg law. Please click here for the tax flash prepared by our firm describing the bill of law. Below an update to our Year-end tax bulletin on the above-described developments.
Tax policy of the new Luxembourg government
The corporate tax rate will decrease by one percentage point in 2019. For companies located in Luxembourg city, that should mean an overall corporate tax rate of around 25%. In addition, the new government intends to amend the Luxembourg tax regime for impatriates. The existing stock options regime will be gradually abolished and replaced. The proposed changes reflect a commitment to maintain the attractiveness of Luxembourg for businesses. In an environment marked by Brexit and an increased focus on substance, the plans aim at facilitating the hiring of highly skilled staff in Luxembourg. This should in particular help companies with R&D activities and those active in the technology and digital sectors. In addition, this should enhance the attractiveness of Luxembourg as a hub for investment funds and insurance companies.
At an international level, Luxembourg will not support the plans for a financial transaction tax as discussed between several EU Member States. Furthermore, Luxembourg favours a global, OECD-driven initiative on the taxation of the digital economy.
ATAD implementation - amendments
The government made minimal amendments to the pending bill of law implementing ATAD despite more extensive suggestions from the Luxembourg state council (Conseil d’Etat). The government mainly clarifies some aspects of the Controlled Foreign Companies (CFC) rules and the grandfathering in the interest limitation rule. In addition, the government proposes to extend the application of the capital gains exemption (i.e. exemption of capital gains up to the amount of CFC income previously picked up at Luxembourg level) to cases of indirect disposal of a CFC. The interest limitation rule, CFC rules and intra-EU anti-hybrid rules are still scheduled to apply to tax years starting on or after 1 January 2019.
We will keep you informed of further developments. Please contact your trusted adviser at Loyens & Loeff should you have any further question.