Luxembourg: Bill Of Law No. 7333 On The Multilateral Instrument

On 7 June 2017, Luxembourg together with 67 other jurisdictions, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS ("Multilateral Instrument" or "MLI"). One of the main purposes of the MLI is to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises by transposing the results from the BEPS project into more than 2,000 tax treaties worldwide.

On 3 July 2018, the Luxembourg Government submitted Bill of Law No. 7333 approving the MLI to the Luxembourg Parliament.

All 81 tax treaties concluded by Luxembourg that are currently in force (including the new treaty with Senegal) are designated as "Covered Tax Agreements" ("CTAs"). However, the extent to which these CTAs will be amended as a result of the MLI will depend on whether or not the other contracting state signed the MLI and on the reservations and options taken by the signatory contracting state.

The MLI contains agreed minimum standards to counter treaty abuse (BEPS Action 6) and to improve dispute resolution mechanisms (BEPS Action 14). It also contains a number of alternatives or optional provisions that will generally apply only if all contracting states to a CTA have chosen to apply that particular alternative or option.

Minimum Standards

Certain provisions of the MLI are mandatory as they were agreed by consensus and reflected in the BEPS report as minimum standards – notably on treaty abuse and dispute resolution.

To meet the BEPS minimum standard on treaty abuse, Luxembourg has opted to apply the principal purpose test ("PPT") to all its CTAs instead of (i) the detailed limitation of benefits ("LOB") provision or (ii) a combination of the PPT with a simplified LOB provision. According to the PPT, a benefit under a CTA shall not be granted if it is reasonable to conclude that one of the principal purposes of the arrangement or transaction is to obtain that treaty benefit, unless it can be established that granting that benefit in these circumstances is in accordance with the object and purpose of the relevant CTA. Where the other contracting state has not opted for the PPT, but for a detailed LOB provision, the MLI would not result in a direct change of the relevant CTA and the two states shall endeavour to reach a mutually satisfactory solution that meets the BEPS minimum standard.

With respect to dispute resolutions, Luxembourg has chosen to express no reservation and to apply the provisions of Articles 16 and 17 covering respectively the mutual agreement procedure ("MAP") and corresponding adjustments. In particular, the new provisions will establish timelines within which a MAP can be requested, will permit the taxpayer to submit a request for MAP to either contracting state and confirm that domestic time limits cannot preclude a resolution reached under MAP from being implemented.

Luxembourg will also include a specific preamble in its CTAs that clarifies that the tax treaty is intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect benefit of residents of third jurisdictions).

Options

Apart from the minimum standards, Luxembourg accepted only a few optional rules.

On transparent entities, Luxembourg has decided to apply Article 3 (with the exception of Art. 3 (2)) of the MLI that addresses the situation of hybrid mismatches as a result of entities that one or both contracting states treat as wholly or partly transparent for tax purposes. This article provides that income derived by or through an entity that is treated as wholly or partly transparent under the tax law of either contracting state shall only be considered income of a resident to the extent that the income is treated, for purposes of taxation by that contracting state, as the income of a resident of that contracting state. This provision may be helpful, in particular for alternative fund vehicles.

For the application of methods for the elimination of double taxation, Luxembourg has chosen Option A. Under this option, Luxembourg will not grant an exemption with respect to income or capital that, pursuant to a CTA, is exempted or taxed favourably in the other contracting state. In the case of a favourable rate of taxation, Luxembourg will grant a tax credit for the foreign tax on the income or capital (within the ordinary limits that apply to tax credits in Luxembourg). This approach is motivated by the fact that most of Luxembourg CTAs already contain this provision.

To prevent artificial avoidance of Permanent Establishment ("PE") status, Luxembourg has selected Option B for the specific activity exemption which refers to Article 5 paragraph 4 of the OECD Model Tax Convention. Option B makes explicit that the list of activities specifically excluded from the definition of a PE in the Covered Tax Agreement will also not create a PE as a result of the MLI, irrespective of whether that activity is of a preparatory or auxiliary character. It should be noted that Luxembourg has always interpreted Article 5 paragraph 4 of the OECD Model Tax Convention in this manner.

Finally, Luxembourg has decided to implement the arbitration procedure which can be launched in cases where the MAP does not resolve the issue at hand within two years.

Reservations

Luxembourg has made a full reservation and will thus not apply the following articles of the MLI:

  • Article 4 (Dual Resident Entities);
  • Article 8 (Dividend Transfer Transactions);
  • Article 9 (Capital Gains from the Alienation of Shares or Interests of Entities Deriving their Values Principally from Immovable Property);
  • Article 10 (Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions);
  • Article 11 (Application of Tax Agreements to Restrict a Party's Right to Tax its Own Residents);
  • Article 12 (Artificial Avoidance of Permanent Establishments through Commissionaire Arrangements and Similar Strategies);
  • Article 14 (Splitting-up of Contracts); and
  • Article 15 (Definition of a Person Closely Related to an Enterprise).

Timing

The entry into force of the MLI will be on the first day of the month following 3 calendar months after the date of deposit of the instrument of ratification, acceptance and approval by Luxembourg.

Once Luxembourg will ratify the MLI and deposit its instrument of ratification with the OECD, its effective application per CTA will depend on the date of entry into force of the MLI in the other contracting state and on the type of taxes.

With respect to a specific CTA, the MLI will then only enter into effect as follows:

  • With respect to withholding taxes, on the first day of the calendar year beginning after the date the MLI enters into force between all contracting states to a CTA – at the very earliest, this would be 1 January 2019 ; and,
  • For all other taxes, for taxable periods beginning on or after the expiration of six months after the date at which the MLI enters into force between all contracting states to a CTA – at the very earliest, this would be taxable periods beginning on 1 January 2020 for companies whose fiscal year coincides with the calendar year.

The MLI already entered into force for 8 jurisdictions with which Luxembourg has a CTA (i.e. Austria, Isle of Man, Jersey, New Zealand, Poland, Serbia, Slovenia, Sweden and the United Kingdom).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions