ATAD 2 and Budget laws voted in Luxembourg
On 19 December 2019, the Luxembourg Parliament voted both the 2020 Budget law, which terminates all pre-2015 tax rulings as of the end of tax year 2019, and the law implementing the second EU anti-tax avoidance directive (ATAD 2). Both laws will enter into force once published in the Official Journal, and enter into effect on 1 January 2020.
Termination of pre-2015 rulings in the 2020 Budget law
With respect to the 2020 Budget law, as previously explained in our tax flash on Luxembourg Budget 2020, pre-2015 tax rulings will no longer be binding after the end of the tax year 2019. For companies with a tax year diverging from the calendar year, the ruling is no longer binding already for their current tax year. Taxpayers may request a new ruling (valid for five years) under the procedure in place since 1 January 2015.
Stating the obvious, pre-2015 rulings remain binding for the years prior to the 2020 tax year, to the extent applicable law, case law, and underlying facts did not change compared to the situation prevailing at the time the ruling was obtained. Merely rendering those rulings non-binding through the 2020 Budget law normally does not affect the filing position of tax payers previously benefiting from the certainty of a pre-2015 ruling. It does create the opportunity for tax authorities to change their interpretation of applicable tax law in such cases. Taxpayers should, together with their tax advisers, assess whether or not such change seems likely, and furthermore whether it would be worthwhile to seek a new tax ruling.
ATAD 2 law
The ATAD 2 law extends the scope of existing anti-hybrid rules to mismatches with third countries and to a wider array of hybrid mismatches. These rules will apply for tax years starting on or after 1 January 2020, except for the reverse hybrid rules which will apply only as of tax year 2022. They target certain mismatch outcomes (deduction without inclusion, double deduction or double non-taxation) which result from the hybridity of a financial instrument, a legal entity or a permanent establishment. The rules may increase the tax base of Luxembourg taxpayers either by denying currently deductible payments or requiring to include income that was so far exempt. Reverse hybrid rules may result in tax transparent entities becoming subject to corporate income tax on part or all of their income. Please refer to our tax flash of 09 August 2019 for further details.
Several key concepts on the ATAD 2 law need further clarification. Pending administrative guidance, taxpayers may find useful indications in parliamentary documents, especially in the opinion of the State Council.
We will keep you informed of further developments. Should you have questions, please contact your trusted Loyens & Loeff adviser.
Pieter StalmanLocal Partner Tax Adviser
Pieter W.H. Stalman, local partner, is a member of the Executive Committee of our office in Luxembourg and a member of the Luxembourg Tax Practice Group. He focuses on cross-border transactions and group restructuring.T: +352 466 230 403 E: [email protected]
Peter MoonsPartner Attorney at law / Avocat à la Cour / Tax adviser
Peter Moons, partner, is a member of the Tax Practice Group in our Luxembourg office. He focuses on cross-border corporate tax advice for multinationals and funds, in particular private equity funds, their initiators and their investors.T: +352 466 230 244 E: [email protected]
Willem BonPartner Tax Adviser
Willem Bon, partner, is a member of the Tax Practice Group in our Luxembourg office. He focuses on cross-border tax issues, advising mainly multinational enterprises, investment funds, as well as wealthy individuals and families.T: +352 466 230 214 E: [email protected]
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, and jointly leads the Luxembourg Tax Controversy Team. He focuses on corporate taxation (including relevant international developments), fund structuring and EU State Aid investigations.T: +352 466 230 429 E: [email protected]