On 20 June 2018, the draft law (Draft Law) implementing the European Union (EU) Anti-Tax Avoidance Directive (ATAD) was introduced in the Luxembourg Parliament. Accordingly, as from 2019, a new provision will be introduced that limits interest deductibility for interest expenses exceeding interest income (exceeding borrowing cost) to 30% of the taxpayer’s taxable earnings before interest, tax, depreciation and amortization (taxable EBITDA).
Additionally, as from 1 January 2019, a new CFC rule will be introduced whereby the undistributed income of low-taxed CFCs from “non-originated arrangements created for the essential purpose of obtaining a tax advantage” must be recognized in the year in which the financial year of the CFC ends, to be included in the taxable base of the Luxembourg taxpayer.
The draft law deals with hybrid mismatches (i.e. hybrid instruments or entities allowing for double non-taxation) between EU Member States. Hybrid mismatches with third countries are included in ATAD 2 and the latter will be implemented in 2019 with effect on 01/01/2020.
