On 1 January 2019 the Luxembourg law implementing the EU anti-avoidance directive of 12 July 2016 ("ATAD") entered into force (except for the exit tax provisions which will be applicable as from 1 January 2020).


Besides the anti-tax avoidance rules of ATAD (items 1 to 5 below), the Luxembourg ATAD Law of 21 December 2018 covers certain other tax measures (items 6 to 7 below) considered as required to avoid aggressive and harmful tax planning by an inadequate use of tax measures currently available for Luxembourg taxpayers.

As such, this article will cover the following items:


ATAD measures


For items 1 to 6, please click on each item to get detailed explanations.

1. Controlled foreign company rules;

2. Interest deduction limitation rules;

3. Hybrid mismatches rules;

4. General anti-abuse rule; and

5. Exit taxation (including new valuation rules regarding transferred assets).


Miscellaneous measures

6. Reinforcement of the permanent establishment concept in a double tax treaty context; and

7. Abolition of the tax neutral conversion of a debt into equity.


As regards the last item, the legal basis which allowed the tax neutrality upon a conversion of a debt into shares has indeed been abolished. This provision, as previously drafted, was likely to result in situations of deduction without corresponding inclusion. As a consequence, these conversions are henceforth considered from a tax perspective as a disposal of the convertible loan at fair market value followed by the acquisition of shares at fair market value. Any latent capital gains that might occur during this conversion may no longer rolled-over into the shares received in exchange, but are considered from a tax perspective as being realized and will thus have to be taxed accordingly at the time of conversion.


What's to come in 2019?

Two important amendments / clarifications are to be expected in 2019 as regards the interest deduction limitation rules (the "IDLR"):

- Contrary to the current legislation, apply (expected retroactively as of 1 January 2019) the IDLR to Luxembourg taxpayers in a tax unity on a consolidated basis (otherwise, the negative effects for such taxpayers may indeed be important). Pierre Gramegna agreed on the principle, and the Luxembourg government should submit in this respect a draft law in 2019.

- Verify the impacts of the IDLR on the approximate 1,200 Luxembourg securitization vehicles. Indeed, these vehicles are not per se excluded from such rule and their impacts are currently not behind doubt. Pierre Gramegna promised that the Luxembourg government will have a closer look at this issue in 2019 and provide potentially further clarifications.


Have a question regarding your tax situation as regards the above? Contact the Hogan Lovells tax team for further information.


By Gérard Neiens (partner, in the middle), Jean-Philippe Monmousseau (senior associate, on the left), and Pierre-Luc Wolff (associate, on the right).

Publié le 23 janvier 2019