On 2 June 2021, the Luxembourg Tax Authorities has published Circular L.I.R. n° 168bis , which clarifies certain aspects of the interest expense deduction limitation rules included in article 168bis of the Luxembourg Income Tax Law (ITL). The interest deduction limitation rules are in line with the EU Anti-Tax Avoidance Directive (ATAD), and effective from 1 January 2019.
The tax deduction for interest and other borrowing costs is limited to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) or EUR 3 million.
The Circular provides clarifications on the interest deduction limitation rules and definition of certain terms. The Circular also provides explanation regarding Rule limiting the deductibility of interest, Determination of the unused interest deduction capacity, Carry forward of additional borrowing costs, Carry forward of unused interest deduction capacity, Safeguard clause in favor of entities that are members of a consolidated group, Material exclusions, Personal exclusions, and Tax transparent bodies.
