Tax Controversy
Hélène Crepin
Bart Van Droogenbroek
Global Compliance and Reporting
Elmar Schwickerath
Silvia Berdote
Sosthene Bussiere
John Hames
Christian Mertesdorf
Maria Scherer
Christian Weines
People Advisory Services
Christophe Joosen
Indirect Tax
Olivier Lambert
Jacques Verschaffel
Rebecca Obermahr
Law
Jean-Baptiste Barberot
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Stephen d’Errico
Raluca Silaghi
A. At a glance
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credits). The net wealth tax can only be reduced to the amount of minimum net wealth tax (determined as described above) that would apply, but this amount can further be reduced by the amount of corporate income tax (including the contribution to the employment fund but after deduction of any tax credits) due by the company for the preceding year.
The following entities are exempt from regular net wealth tax, but subject to the minimum net wealth tax:
• Securitization vehicle
• Venture capital company (société d’investissement en capital à risque, or SICAR) and reserved alternative investment fund (RAIF; fonds d’investissement alternatif réservé, or FIAR) incorporated under the form of a corporation and subject to the same tax regime as a SICAR
• Corporate pension fund (SEPCAV)
• Pension savings association (ASSEP)
• Commercial companies duly accredited as societal impact companies
Luxembourg investment vehicles. Luxembourg offers a large number of investment vehicles (companies and funds) that can be used for various classes of assets and investment strategies.
Luxembourg Undertakings for Collective Investment in Transferable Securities. Luxembourg Undertakings for Collective Investment in Transferable Securities (UCITSs) are investment funds that invest in liquid assets and that can be distributed publicly to retail investors across the EU. They are subject to an annual subscription tax (taxe d’abonnement) of 0.05%, levied on their total net asset value. A reduced rate of 0.01% or a tax exemption may apply in certain specific cases. Collective-investment funds or individual compartments of such funds that invest a specific portion of their net asset value in determined sustainable economic activities, as defined by the EU Taxonomy Regulation (Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088) may also benefit from reduced subscription tax rates. Investments in the fossil gas and nuclear energy sectors do not qualify for the reduced subscription tax. For the rates of the subscription tax, see Section D. Distributions made by UCITSs are not subject to withholding tax.
Specialized Investment Funds. Specialized Investment Funds (SIFs) are lightly regulated investment funds for “well-informed investors.” In this context, a “well-informed investor” is one of the following:
• An institutional investor
• A professional investor
• Any other type of investor who has declared in writing that he or she is a “well-informed investor” and either invests a minimum of EUR100,000 or has an appraisal from a bank, an investment firm, a management company or an authorized Alternative Investment Fund Manager (all of these with a European passport), certifying that he or she has the appropriate expertise, experience and knowledge to adequately understand the investment made in the fund
transactions in the broadest sense. Securitization companies in corporate form are subject to corporate income tax and municipal business tax. However, commitments to investors (dividend and interest payments) are deductible from the tax base. Distributions of proceeds are qualified as interest payments for Luxembourg income tax purposes and are consequently not subject to withholding tax. Securitization companies in corporate form benefit from a net wealth tax exemption, except that they are subject to the minimum net wealth tax regime and, accordingly, must pay annual net wealth tax under this regime (see Net wealth tax). Securitization companies in the form of a partnership that are not reverse hybrid entities (see Anti-hybrid rules in Section E) are generally transparent for tax purposes and accordingly not subject to corporate income, municipal business, net wealth tax and minimum net wealth tax.
Private asset management companies. The purpose of a private asset management company (société de gestion de patrimoine familial, or SPF) is the management of private wealth of individuals without carrying out an economic activity. However, they are not entitled to hold real estate properties, neither directly nor through one or more tax transparent entities or mutual investment funds. SPFs are subject to subscription tax levied at a rate of 0.25% with a minimum amount of EUR100 and a maximum amount of EUR125,000. An exemption from corporate income tax, municipal business tax and net wealth tax applies.
SPFs may not benefit from double tax treaties entered into by Luxembourg or from the EU Parent-Subsidiary Directive. Dividend and interest income arising from financial assets may be subject to withholding tax in the state of source in accordance with the domestic tax law of that state. Dividend distributions to shareholders are not subject to Luxembourg withholding tax. Interest payments are exempt from withholding tax unless the recipient is a Luxembourg resident individual (see Interest).
Holding companies. Holding companies (sociétés de participations financières, or SOPARFI) are fully taxable Luxembourg resident companies that take advantage of the participation exemption regime. They may benefit from double tax treaties signed by Luxembourg as well as the provisions of the EU Parent-Subsidiary Directive. For information regarding debt-toequity rules, see Section E. A SOPARFI can be set up as a public company limited by shares (société anonyme), limited company (société à responsabilité limitée) or a partnership limited by shares (société en commandite par actions, or SCA).
Levy on income derived from real estate located in Luxembourg. A real estate levy (prélèvement immobilier) of 20% is due from certain exhaustively listed investment vehicles (SIFs, certain Undertakings for Collective Investment [UCIs] and RAIFs with a legal personality distinct from that of their partners) receiving or realizing income from real estate located in Luxembourg (that is, immovable assets according to Luxembourg civil law). SIFs, UCIs or RAIFs incorporated under the legal form of a limited partnership, as well as mutual investment funds, are excluded from the measure. The levy only applies to income derived from immovable property located in Luxembourg; investment vehicles
owning real estate located abroad are not subject to this measure. Income subject to the real estate levy includes rental income derived from property located in Luxembourg, capital gains derived from the transfer of property located in Luxembourg and income derived from the transfer of interests or units held by a targeted investment vehicle in a tax transparent entity or mutual investment fund owning, either directly or indirectly (that is, through one or more other tax transparent entities or mutual investment funds), real estate located in Luxembourg.
Capital gains. The capital gains taxation rules described below apply to fully taxable resident companies and to determined domestic permanent establishments.
Capital gains are generally regarded as ordinary business income and are taxed at the standard rates. However, capital gains on the sale of shares may be exempt from tax if all of the following conditions apply:
• The seller is one of the following:
A resident capital company fully subject to tax in Luxembourg or a qualifying resident entity.
A Luxembourg permanent establishment of an entity that is resident in another EU state and is covered by Article 2 of the EU Parent-Subsidiary Directive.
A Luxembourg permanent establishment of a capital company resident in a state with which Luxembourg has entered into a tax treaty.
A Luxembourg permanent establishment of a capital company or cooperative company resident in an EEA state other than an EU state.
• The shares have been held for 12 months or the shareholder commits itself to hold its remaining minimum shareholding in order to fulfill the minimum shareholding requirement for an uninterrupted period of at least 12 months.
• The holding represents at least 10% of the capital of the subsidiary throughout that period, or the acquisition cost is at least EUR6 million.
• The subsidiary of which shares are sold is a resident capital company fully subject to tax, a nonresident capital company fully subject to a tax comparable to Luxembourg corporate income tax or an entity resident in an EU Member State that is covered by Article 2 of the EU Parent-Subsidiary Directive.
However, capital gains qualifying for the above exemption are taxable to the extent that related expenses in excess of exempt dividends received are deducted in the current year or have been deducted in prior years. These related expenses include interest on loans used to finance the purchase of such shares and write-offs.
Administration. In general, the tax year coincides with the calendar year unless otherwise provided in the articles of incorporation. Tax returns must be filed before 31 December in the year following the fiscal year. Luxembourg corporations must file their corporate income tax, municipal business tax and net wealth tax returns by electronic means. Late filing may be subject to a surcharge of up to 10% of the tax due. In addition, non-compliance with orders or instructions given by the tax authorities within the assessment process may trigger a penalty of up to EUR25,000.
Luxembourg tax exemption for dividends derived from an otherwise qualifying EU subsidiary (see above) does not apply to the extent that this income is deductible by the EU subsidiary. In addition, the participation exemption for dividends from qualifying EU subsidiaries and the exemption from Luxembourg dividend withholding tax for income (dividend) distributions to qualifying EU parent companies of Luxembourg companies does not apply if the income is allocated in the context of “an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the PSD (Parent-Subsidiary Directive), are not genuine having regard to all relevant facts and circumstances.” In line with the European Council’s directive, the law continues by stating that “an arrangement, which may comprise more than one step or part, or a series of arrangements, shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.”
In addition to the specific anti-hybrid rule and anti-abuse rule of the aforementioned directives, which apply solely in an EU context, the exemption may further be denied under the general rules neutralizing hybrid mismatches with third countries (see Anti-hybrid rules in Section E) or the general Luxembourg antiavoidance rule (see Anti-avoidance rules in Section E). As a result of the general anti-hybrid rules, to the extent that there is a hybrid mismatch that results in a deduction in the payer jurisdiction, the income will not benefit from the participation exemption in Luxembourg. The general anti-avoidance rule may be applied by the tax authorities to disregard legal transactions for which the main purpose or one of the main purposes is tax avoidance.
Interest. Except for the cases discussed below, no withholding tax is imposed on interest payments. For interest linked to a profitsharing investment, dividend withholding tax may apply.
Withholding tax at a rate of 20% is imposed on interest payments made to individuals resident in Luxembourg by the following:
• Luxembourg paying agents
• Paying agents established in the EU or in an EEA state other than an EU state, if a specific form is filed by the recipient by 31 March of the calendar year following the year of receipt of the interest
The withholding tax is final if the interest income is derived from assets held as part of the private wealth of the individual.
Foreign tax relief. A tax credit is available to Luxembourg resident companies for foreign-source income (derived from a country with which no double tax treaty is in place) that has been subject to an equivalent income tax abroad. The same applies to withholding tax levied in the country of source of the income in accordance with the provisions of an applicable double tax treaty and Luxembourg tax law. The maximum tax credit corresponds to the Luxembourg corporate income tax that would have been payable on the net foreign-source income but for the tax credit.
C. Determination of trading income
General. The taxable income of corporations is generally based on the annual financial statements prepared in accordance with generally accepted accounting principles. Profits disclosed are adjusted for exempt profits, nondeductible expenses, special deductions, loss carryforwards, transfer-pricing adjustments and inclusion of undistributed net income of controlled foreign companies (CFCs).
Expenses incurred exclusively for the purposes of the business are generally deductible, except to the extent disallowed by interest limitation rules or by anti-hybrid mismatch rules introduced by the laws transposing the EU Anti-Tax Avoidance Directive (ATAD) and the Council Directive (EU) 2017/952 of 29 May 2017 amending the ATAD regarding hybrid mismatches with third countries (ATAD 2). The anti-hybrid mismatch rules are designed to neutralize the effect of determined hybrid mismatches arising between associated enterprises, between a Luxembourg taxpayer and an associated enterprise, between the head office and its permanent establishment, between two or more permanent establishments of the same entity, or under a structured arrangement. The neutralization is achieved either by denying the deduction of expenses in Luxembourg or by including the corresponding income in the Luxembourg tax base. Also, see Interest limitation rules in Section E.
Under certain circumstances, the deduction of interest and royalties owed by Luxembourg corporate taxpayers to related enterprises that are corporations established in a country listed on the EU list of non-cooperative jurisdictions for tax purposes is disallowed. This measure does not apply if the taxpayer proves that the transaction that gives rise to the interest or royalties owed “is used for valid economic reasons which reflect economic reality.”
Accounting rules. International Financial Reporting Standards (IFRS), as adopted by the EU, were introduced in Luxembourg in 2010. However, a tax balance sheet is required to bring valuation of assets and liabilities in line with tax valuation rules, which generally avoids the taxation of unrealized gains. Companies that prepare their accounts under the Luxembourg generally accepted accounting principles’ standards may also opt for the use of fair value accounting. Such companies must set up a tax balance sheet aligning the assets and liabilities at the value foreseen by tax laws.
Unless an exception applies, Luxembourg companies are generally subject to the Luxembourg standard chart of accounts (plan compatible normalize, or PCN).
Inventories. Inventory must be valued at the lower of acquisition (or production) cost or going concern value. The cost may be calculated either on the basis of weighted-average prices, first-in, firstout (FIFO), last-in, first-out (LIFO) or a similar method, provided the business situation justifies such a method. The method chosen should be applied consistently.
Provisions. The tax law does not provide for specific rules with respect to provisions. Based on the principle that tax follows accounting, a provision is tax deductible if it follows accounting
Luxembourg permanent establishment of a nonresident capital company fully subject to a tax comparable to Luxembourg corporate income tax also qualifies as a parent company of the group. The fiscal unity rules also allow a fiscal unity between a Luxembourg parent company and its indirectly held Luxembourg subsidiary through a nonresident qualifying company or a taxtransparent entity.
Companies that are part of a fiscal unity suffer the minimum net wealth tax at the level of each entity, but the consolidated amount of minimum tax is capped at EUR32,100.
Companies may also form a “horizontal fiscal unity.” The fiscal unity can be formed by two or more Luxembourg-resident companies owned by the same nonresident parent, provided that the parent company is resident in an EEA state and fully subject to a tax comparable to Luxembourg corporate income tax. In addition, Luxembourg permanent establishments of a nonresident company, regardless of its fiscal residence, are allowed to be included in a fiscal unity, provided that this company is fully liable to a tax corresponding to Luxembourg corporate income tax.
The members of a vertical or horizontal fiscal unity must bind themselves for a period of at least five accounting years. If any of the conditions to form a fiscal unity are no longer met within this minimum five-year period of existence of the fiscal unity, there will be rectifying tax assessments on a stand-alone basis for the members no longer meeting these conditions.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax
Value-added tax, on the supply of goods and services within Luxembourg and on the import of goods and services into Luxembourg
General rate (see below) 17
Other rates (see below) 3/8/14
Subscription tax (taxe d’abonnement), annual tax on the value of a company’s shares; rate depends on type of company
Société de Gestion de Patrimoine Familial (SPFs) 0.25 Investment funds
Certain funds of funds, certain authorized money market funds, Pension Fund Pooling Vehicles (PFPVs), funds reserved for investors in the framework of Pan-European Personal Pension Products (PEPPs), microfinance UCIs, European Long-Term Investment Funds (ELTIFs) and Exchange Traded Funds 0
Specialized Investment Funds (SIFs), dedicated funds (funds owned exclusively by institutional investors), institutional compartments of funds and authorized money market funds, on the condition that the exemption regime does not apply 0.01
Nature of tax
Collective-investment funds or individual compartments of such funds that invest a specific portion of their net asset value in determined sustainable economic activities 0.01 to 0.04 Other funds 0.05
Social security contributions on salaries (2024 rates); paid by
Payroll taxes, for accident insurance; paid by employer; as of 1 January 2024, the accident insurance rates vary depending on a “bonus-malus” factor ranging from 0.85 to 1.5 applied on a base rate of 0.7%; this factor is attributed considering the costs generated by the accidents that occurred at work during an observation period; every employer in Luxembourg has received a communication informing it of the rate to be applied 2024 rates) 0.595 to 1.05
Health at work contribution, on salaries; paid by employer (2024 rate)
E. Miscellaneous matters
Foreign-exchange controls. Luxembourg does not impose transfer restrictions. The Banque Centrale de Luxembourg (BCL) and the Service Central de la Statistique et des Etudes Économiques (the national statistical institute of Luxembourg) monitor the transfer of funds. Effective from 1 January 2012, this obligation was transferred to the companies themselves on a monthly basis. The reporting obligation also applies to selected companies in the nonfinancial sector that, based on previous activity, are expected to realize large volumes of transactions, mainly services, with foreign counterparts.
Debt-to-equity rules. The Luxembourg tax law does not contain any specific thin-capitalization rules. In principle, borrowed money that is necessary for financing an operation is not limited to a percentage of paid-in capital. The ratio between debt and equity must be determined according to transfer pricing principles.
Anti-avoidance rules. According to the general anti-avoidance rule (GAAR), the tax law cannot be circumvented by an abuse of forms or institutions of law. An abuse exists when the legal path, having been chosen for the main purpose or one of the main purposes of obtaining a circumvention or reduction of the tax burden that defeats the object or purpose of the tax law, is not authentic (that is, it is not put in place for valid commercial reasons that reflect economic reality) having regard to all relevant facts and circumstances. The GAAR allows tax authorities to disregard legal constructions characterized as abusive and levy tax on the structure or transaction that they would consider as adequate.
the employee’s annual base salary. The expatriate tax regime is applicable for eight years, provided that all the conditions continue to be satisfied. Employers that have employees who enjoy such regime must report by 31 January of the following year the related information to the tax office in charge of wage tax.
Limitation of corporate tax deductibility of “golden handshakes.” To limit excessive “golden handshakes” to departing employees, voluntary departure indemnities or dismissal indemnities above EUR300,000 are not tax-deductible for employers. Tax rules at the level of the employee remain fully applicable. A fractioned payment that is made over several years is deemed to be a single payment.
Islamic finance. The Luxembourg tax administration provides guidance covering the Luxembourg tax treatment of some contracts and transactions with respect to Islamic finance. This clarifies the revenue repatriation mechanism of Luxembourg’s Shariacompliant financing instruments as well as structuring capacities.
VAT Group. The VAT Group is considered to be a single taxable person with the result that intra-group transactions are disregarded for VAT purposes and VAT returns are due only in the name of the VAT Group.
VAT free zone. Luxembourg has a temporary exemption regime for VAT purposes. This regime provides a VAT suspension system for transactions concerning goods stored in specific locations.
F. Treaty withholding tax rates
The rates reflect the lower of the treaty rate and the rate under Luxembourg domestic tax law. Dividend distributions to companies resident in a treaty jurisdiction are covered by the Luxembourg participation exemption regime. As a result, a full exemption from Luxembourg dividend withholding tax may apply if certain conditions are met (see Section B).
Andorra
0/5/15 (cc)
Armenia 0/5/15 (s)
Azerbaijan
0/5/15 (a)(d) 0
0/5/10 (n) 0
Bahrain 0/10 (z) 0
Barbados 0/15 (l) 0
Belgium 0/10/15 (c)(d) 0 0
Botswana
0/5/10 (dd) 0
Brazil 0/15 (g) 0 0
Brunei Darussalam 0/10 (z) 0
Bulgaria
0/5/15 (a)(d) 0
Canada 0/5/15 (h) 0
China Mainland 0/5/10 (a) 0
Croatia 0/15 (d)(s) 0
Cyprus 0/5 (d)(ff) 0
Czech Republic 0/10 (aa)(d) 0
Denmark
0/5/15 (a)(d) 0
Estonia 0/10 (d)(bb) 0 0
Ethiopia
Finland
0/5/10 (dd) 0
0/5/15 (a)(d) 0
France (dd) 0/15 (d)(hh)
Georgia
Germany
Greece
Guernsey
0/5/10 (o)
0/5/15 (d)(w)
0/7.5 (d)
0/5/15 (g)
Hong Kong 0/10 (q)
Hungary 0/10 (d)(z)
Iceland
0/5/15 (a)
India 0/10
Indonesia 0/10/15 (a)
Ireland
Isle of Man
Israel
0/5/15 (a)(d)
0/5/15 (g)
0/5/10/15 (u)
Italy 0/15 (d)
Japan
Jersey
Kazakhstan
Korea (South)
0/5/15 (g)
0/5/15 (g)
0/5/15 (y)
0/10/15 (g)
Kosovo 0/15 (ff)
Laos
0/5/15 (s)
Latvia 0/5/10 (a)(d)
Liechtenstein
Lithuania
Malaysia
Malta
Mauritius
Mexico
Moldova
Monaco
Morocco
Netherlands
North Macedonia
Norway
Panama
0/5/15 (r)
0/5/15 (a)(d)
0/5/10 (g) 0
0/5/15 (a)(d) 0
0/5/10 (g)
0/5/15 (g)
0/5/10 (t)
0/5/15 (s)
0/10/15 (a)
0/2.5/15 (a)(d)
0/5/15 (a)
0/5/15 (a)
0/5/15 (s)
Poland 0/15 (d)(x)
Portugal 0/15 (d)
Qatar
0/5/10 (p)
Romania 0/5/15 (a)(d)
Russian Federation (ii) 0/5/15 (j)
San Marino 0/15 (l)
Saudi Arabia 0/5 0
Senegal
0/5/15 (gg)
Serbia 0/5/10 (a) 0
Seychelles 0/10 (z)
Singapore 0
Slovak Republic
0/5/15 (a)(d)
Slovenia 0/5/15 (a)(d)
South Africa
0/5/15 (a)
Spain 0/5/15 (a)(d)
Sri Lanka
0/7.5/10 (k)
Sweden 0/15 (d)
Switzerland
Taiwan
0/5/15 (f)
0/10/15 (e)
Tajikistan 0/15
Thailand 0/5/15 (a)
(bb) The 0% rate applies if the beneficial owner is a company that holds directly at least 10% of the capital of the company paying the dividends. A 10% rate applies to other dividends.
(cc) The 0% rate applies if the beneficial owner holds directly and for an uninterrupted period of 12 months at least 10% of the shares of the payer or paid a purchase price for its holding of at least EUR1,200,000. The 5% rate applies if the beneficial owner is a company other than a partnership holding directly at least 10% of the share capital of the payer. The 15% rate applies in all other cases.
(dd) The 5% rate applies if the beneficial owner is a company (other than a partnership) that holds directly at least 25% of the capital of the company paying the dividends. The 10% rate applies in all other cases.
(ee) The 0% rate applies if the beneficial owner is a company that holds, for an uninterrupted period of three years preceding the date of payment of the dividends, a direct participation of at least 50% in the paying company and if an investment of at least USD1 million or its equivalent in the local currencies of the contracting states has been made in the capital of the paying company. This rate applies only insofar as the distributed dividend is derived from an industrial or commercial activity. The 5% rate applies if the beneficial owner is a company that holds directly at least 20% of the capital of the payer. The 15% rate applies to other dividends.
(ff) The 0% rate applies if the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the capital of the payer.
(gg) The 0% rate applies if the beneficial owner holds directly and for an uninterrupted period of 12 months at least 10% of the shares of the payer or paid a purchase price for its holding of at least EUR1,200,000. The 5% rate applies if the beneficial owner is a company, other than a partnership, holding directly at least 20% of the share capital of the payer. The 15% rate applies in all other cases.
(hh) The 0% rate applies if the beneficial owner holds directly at least 5% of the payer’s capital during a period of 365 days, including the day of the payment.
(ii) In 2023, the Russian Federation unilaterally suspended specific provisions of the treaty with Luxembourg, including those relating to dividends, interest and royalties.
(jj) The treaty provides for a withholding tax exemption unless the dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and whose income from such immovable property is exempt from tax. In such case, a maximum withholding tax of 15% shall apply. However, the withholding tax exemption still applies if the beneficial owner of such dividends is a recognized pension fund as defined in the treaty.
Luxembourg has signed and enacted new tax treaties or amendments to existing tax treaties with Argentina, Ghana, Kuwait and Rwanda, but these treaties and amendments are not yet in force. The withholding tax rates under these new treaties and amendments are not reflected in the table above.
Following treaty negotiations, treaty drafts or amendments to existing treaties have been initialed with Colombia, Kyrgyzstan, Montenegro, Oman and South Africa. New treaties or amendments to existing treaties have been signed with Albania and Cape Verde.
Tax treaty negotiations with Chile, Egypt, Mali, New Zealand, Pakistan and the Slovak Republic are under way.
Luxembourg complies with OECD standards with respect to information exchange between tax authorities and reinforces international fiscal cooperation against tax fraud.
After signing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI) on 7 June 2017 and following the adoption of the law of 7 March 2019 approving the MLI, Luxembourg deposited its instrument of approval with the OECD on 9 April 2019. It also submitted its final MLI positions and a list of 81 tax treaties that Luxembourg
has entered into with other jurisdictions and that it wishes to designate as a Covered Tax Agreement (CTA). The MLI entered into force for Luxembourg on 1 August 2019. The provisions of the MLI with respect to a CTA have effect after Luxembourg and the other party to the relevant CTA have deposited their instrument of ratification, acceptance or approval of the MLI and a specified time has passed, with a further distinction between different provisions:
With respect to taxes withheld at source on amounts paid or credited to nonresidents, the provisions will have effect when the event giving rise to such taxes occurs on or after the first day of the calendar year that begins on or after the latest of the dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA. For contracting jurisdictions to a CTA that have already deposited their instrument of ratification, acceptance or approval or that deposit it before the end of September 2019, the provisions of the MLI have effect when the event giving rise to taxes withheld at source occurs on or after 1 January 2020.
With respect to all other taxes levied by a contracting jurisdiction, the first taxes for which the provisions will enter into effect are those that are levied with respect to tax periods beginning on or after the expiration of a period of six calendar months from the latest of the dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA. For contracting jurisdictions to a CTA that have already deposited their instrument of ratification, acceptance or approval or that deposit it before the end of April 2019, the provisions of the MLI have effect for taxes levied with respect to tax periods beginning on or after 1 February 2020.
The most important changes that will affect Luxembourg’s tax treaties relate to the introduction of a principal purpose test and an amendment of the preamble that states that the relevant tax treaty is not intended to create opportunities for non-taxation or reduced taxation. Luxembourg also decided to apply mandatory binding arbitration.