The Luxembourg Parliament unanimously voted on January 28 to amend the income tax law provision governing the tax deductibility of expenses that corporate taxpayers incur. The draft legislation (Bill n°7547) had been submitted to Parliament on March 30, 2020.
The new provision disallows deductions for interest or royalties owed to associated corporate entities established in jurisdictions that the EU Council considers non-cooperative in tax matters. It will apply to expenses accruing on or after March 1, 2021.
The new legislation aligns with the EU Council guidelines agreed on December 5, 2019. Luxembourg companies should examine their interest and royalty payments to all relevant jurisdictions to determine whether they will be subject to the new limitation.