On 15 June 2018, the Luxembourg Cabinet approved a draft bill providing for measures to implement the EU Anti-Tax Avoidance Directive (ATAD). The draft bill includes the new provisions on the limitation of interest deduction, which limit the deduction of net interest expense to 30% of EBITDA, with the grandfathering clause for loan agreements concluded before 17 June 2016.

The law also include the new controlled foreign company (CFC) rules to provide for inclusion of low-taxed CFC income arising from non-genuine arrangements that have been put into place for the essential purpose of obtaining a tax advantage, which reflects option B of the ATAD CFC rules (the other option, option A, is general inclusion of passive income).

The law also includes the new controlled foreign company (CFC) rules which provide for the inclusion of low-taxed CFC income from non-original agreements that were introduced for the main purpose of obtaining a tax advantage. New hybrid mismatch rules also added for targeting mismatches involving EU Member States.

The law also includes measures that go beyond ATAD, including amending the existing rules on permanent establishments, so that situations will not arises where income is not taxed in Luxembourg or abroad and the abolition of tax-neutral reallocations of loans into shares including that capital gains attached to convertible loans will be taxable at the time of conversion.

As per the Directive, the interest deduction limitation rules, CFC rules, and GAAR amendments will apply from 1 January 2019, while the exit tax rules will from 1 January 2020. The hybrid mismatch rules should initially apply from 1 January 2019, but with the changes introduced by ATAD2, the rules will generally apply from 1 January 2020.