Luxembourg has issued draft legislation to scrap the regime permitting the deferral of the taxation of real estate capital gains provided that these are reinvested in another property within Luxembourg. The draft legislation takes account of the view of the European Commission that this aspect of the tax rules is discriminatory and therefore contrary to EU law.

Currently capital gains that are made from the sale of property and are then invested in real estate outside Luxembourg are subject to taxation immediately, while a temporary deferral of the tax on the capital gain may be available if the gains are invested in property situated within the territory of Luxembourg. This relief applies to individuals owning property in Luxembourg regardless of their member state of residence.

In its reasoned opinion issued on 20 February 2014 the European Commission expressed the view that the different tax treatment depending on the location of the property was an unjustified restriction on free movement of services and on the free movement of capital within the EU. Luxembourg was given two months in which to change the tax law, otherwise the Commission was prepared to take the matter to the European Court of Justice.

Luxembourg has also issued a bill to improve the procedure for the exchange of tax information upon request. This has been done because the OECD’s Global Forum determined that Luxembourg was not in line with the standards of transparency and tax information exchange at the end of 2013. The OECD’s Global Forum is aiming to enforce a global standard of tax transparency and information exchange and has been reviewing the tax systems of a number of countries to determine the extent of their compliance with standards.