Latest tax legislative developments

The law implementing the EU Directive 2017/952 (ATAD 2) of 29 May 2017 into Luxembourg domestic law has been published on 23 December 2019. The measures introduced by ATAD 2 should enter into effect on 1 January 2020. As an exception, the provision regarding reverse hybrid mismatches should enter into effect later, as from 1 January 2022. For more details on the measures introduced by ATAD 2, please refer to our article published earlier this year.

The main difference with the draft law refers to the reverse hybrid rule. The newly introduced article 168quater of the Luxembourg income tax law provides that a Luxembourg entity treated as tax transparent from a Luxembourg perspective and as opaque by another jurisdiction involved (ie, a reverse hybrid entity) and where the related party condition is fulfilled (as defined in the Luxembourg law) shall be regarded as a taxpayer resident in Luxembourg for tax purposes and shall be liable to corporate income tax only with respect of the part of the net income which is not taxed in any jurisdiction (ie, Luxembourg or investor country). For the remaining partners which do not produce any reverse hybrid mismatch, this entity shall remain tax transparent from a Luxembourg perspective.

On 19 December 2019, the draft law for the Budget 2020 has been voted by the Parliament. Therefore, the limitation of validity period of advanced tax agreements will enter into force as from 1 January 2020. For further details, please refer to our article published earlier this fall.