Luxembourg parliament approves bill of law that denies tax deduction of interest and royalties due to EU blacklisted countries

Luxembourg

On 28 January 2021, the Luxembourg parliament approved the bill of law with number 7547 (the “Bill”) to deny the tax deductibility of interest and royalties due to associated enterprises established in a jurisdiction listed on the EU list of non-cooperative countries and territories (“EU Blacklist”). A second vote has been waived by the Council of State. As a next step, the law will be published in the Luxembourg Official Gazette and will enter into force on 1 March 2021.

Our newsletter of 6 April 2020 on the Bill can be found here.

The following changes have been made to the Bill:

  • The date of entry into force of the Bill was changed from 1 January 2021 to 1 March 2021 considering that the Bill was not yet approved on 1 January 2021.

  • Only interest and royalties that are due (as opposed to “paid or due”) as of 1 March 2021 fall within the scope of this new measure. This change was made to prevent a retroactive effect of the law which could occur in case interest and royalties due prior to 1 March 2021 are paid after such date.

Interest and royalties are not denied from deduction if the taxpayer provides proof that the transaction, to which the interest or royalties are due, is used for valid commercial reasons which reflect economic reality.

The relevant EU Blacklist for the first year will be the last version published on 1 March 2021 and for following years the last version published on 1 January.

Countries and territories that are subsequently added to the EU Blacklist by the EU are to be taken into account for interest or royalties due from January 1 of the following year. Withdrawals of countries and territories, on the other hand, are to be taken into account with regard to interest or royalties due from the date of publication of the updated EU Blacklist in the Official Journal of the EU.

Since 6 October 2020, the EU Blacklist includes the following countries and territories:

  • American Samoa

  • Anguilla

  • Barbados

  • Fiji

  • Guam

  • Palau

  • Panama

  • Samoa

  • Seychelles

  • Trinidad and Tobago

  • US Virgin Islands

  • Vanuatu

The new EU Blacklist which is updated twice a year is now eagerly awaited to assess the potential impact of this new measure on existing structures. The updated list should be available in the course of February 2021.

Our tax team is available to answer any questions you may have.