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Luxembourg Adopts Anti-Tax Avoidance Law

Friday, December 21, 2018

On December 18, 2018, Luxembourg's parliament approved legislation that will implement the European Union Anti-Tax Avoidance Directive (ATAD I).

ATAD I contains five legally binding anti-abuse measures, which all member states are required to apply against common forms of aggressive tax planning. These include an exit tax, controlled foreign company rules, a general anti-avoidance rule, limitations on interest deductions, and rules to prevent the double non-taxation of certain income. Member states are required to transpose ATAD I by December 31, 2018, with the exception of the exit tax rules, which must be transposed by December 31, 2019.

The legislative proposals, included in draft law no.7318, are intended to align Luxembourg's tax law with the requirements of ATAD I.

The legislation also includes additional amendments unrelated to ATAD I which modify the definition of permanent establishment status and rules relating to the conversion of debt to equity.

The new law is generally applicable from January 1, 2019, except measures relating to the exit tax, which will apply from January 1, 2020.