Luxembourg tax measures on non-cooperative jurisdictions: EU blacklist updated
On 6 October 2020, the European Union list of non-cooperative jurisdictions (the “EU List") was updated. The changes have an impact on bill of law nº 7547, providing that, as from 1 January 2021, interest or royalties, accrued or paid, should no longer be deductible for tax purposes when the beneficiary is a related enterprise established in a country included in the EU List.
On 30 March 2020, the Luxembourg Government has submitted bill of law nº 7547 (the “Bill") providing that, as from 1 January 2021, interest or royalties, accrued or paid, should not be deductible for tax purposes when the beneficiary is a related enterprise established in a country included in the EU List.
Under the Bill, the non-deductibility of interest and royalties, to be introduced through the amendment of article 168 of the Luxembourg Income Tax Law, should not apply where the Luxembourg company demonstrates that the transaction pursuant to which interest and royalties are paid is implemented for valid commercial reasons that reflect economic reality.
On 6 October 2020, the Council of the EU decided to remove Cayman Islands and Oman from the EU List, further to the implementation of specific measures by these jurisdictions.
Anguilla and Barbados were however added to the EU List following peer review reports published by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
As of today, the Bill is still going through the legislative process[1] with a final vote expected before the end of the year. Arrangements involving Cayman entities should thus no longer be concerned by the upcoming measures, as long as the Cayman Islands remain excluded from the EU list. These measures will continue to impact structures where a Luxembourg taxpayer owes interest or royalties to a related enterprise which is tax resident in American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the U.S. Virgin Islands or Vanuatu.
For previous reporting and further details on the Bill, please see our newsflash of 3 April 2020.
[1] The most recent development being the Avis du Conseil d'État, dated 16 June 2020.
