Implementation of Anti-Tax Avoidance Directive (ATAD 1)

On 19 June 2018 the bill of law 7318 (“Bill”) was introduced to the Luxembourg parliament relating to the transposition of measures included in EU anti-tax avoidance Directive 2016/1164 (“ATAD 1”) into national legislation. The Bill contains the ATAD 1 provisions concerning the following measures:

• Interest limitation rules (Art. 4 of ATAD 1)
• Exit taxation (Art. 5 of ATAD 1)
• General anti-abuse rule (“GAAR”, Art. 6 of ATAD 1)
• Controlled foreign company (“CFC”) rule (Art. 7 and 8 of ATAD 1);
• Intra-EU anti-hybrid rule (Art. 9 of ATAD 1)

Based on the ATAD 1, these measures have to be implemented by the EU Member States by 31 December 2018.

With the exception of the provisions on exit taxation which should apply as of 1 January 2020, it is expected that the above measures should come into force on 1 January 2019.

The Bill targets taxpayers subject to Luxembourg corporate income tax, with the exception of the GAAR and the exit tax provisions which apply to all taxpayers.

The Bill also includes additional BEPS-related provisions proposing amendments to the Luxembourg domestic tax legislation in relation to the following aspects:

• the tax neutral conversion of debt into shares; and
• the recognition of foreign permanent establishments (PEs) under tax treaties.

The proposed provisions are still subject to amendments before the final vote by the Luxembourg Parliament.

For further insight into the key features brought by this bill of law, see the article "Implementation of Anti-Tax Avoidance Directive (ATAD 1)" on our website.