On 8 January 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 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. Borrowing costs that exceed the limits may be carried forward for 5 years.
The Circular provides clarifications on the interest deduction limitation rules and their definitions and concepts with numerical examples. Also provides details about borrowing costs and interest revenue, carry forward of additional borrowing costs.
Furthermore, the Circular provides valuable guidance on the exceptions in relation to loans settled before 17 June 2016 and public infrastructure projects.
