On 28 July 2021, the Luxembourg Tax Authorities has published Circular L.I.R. n° 168bis/1 (French), which clarifies certain aspects of the interest expense deduction limitation rules included in the 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 updated version of the Circular provides a new section (Section 6) relating to the application of the safeguard clause in the presence of a consolidated group is amended to include the situation of collective bodies which are members of a fiscally integrated group. 2 new sections included in Section 6. These are:
- Section 6.1: Safeguard clause applicable to collective bodies which are not members of a fiscally integrated group (article 168bis, paragraph 6 L.I.R.); and
- Section 6.2: Safeguard clause applicable to collective bodies which are members of a fiscally integrated group (article 164bis, paragraph 9, number 9 L.I.R.)
