Global Tax Alert | 12 December 2018

Luxembourg Minister of Finance announces interest limitation will apply at fiscal unity level

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During a speech given on 12 December 2018, Luxembourg’s Minister of Finance, Mr. Gramegna announced that following discussions with numerous stakeholders, the interest limitation rules that will be introduced as part of the implementation of the European Union Anti-Tax Avoidance Directive (ATAD) will apply to fiscal unities as such and will not have to be applied at the level of the individual members of fiscal unities.

The ATAD implementation law introduces an interest limitation rule that limits the deductibility of taxpayers’ borrowing costs to 30% of taxable EBITDA (taxable earnings before interest, tax, depreciation and amortization). The new interest limitation rules will be applicable for tax years starting on or after 1 January 2019. The draft law published on 20 June 2018 provides that companies forming a fiscal unity have to apply the new interest limitation rule at the level of each individual entity. As indicated by the Minister, this will be amended such that the interest limitation rules will apply to the fiscal unity as a whole. At the same time, it is expected that the €3 million minimum deduction will only be available once, i.e., for the fiscal unity as such.

The ATAD implementation law is expected to be voted on by the Luxembourg Parliament on 18 December. However, the announced changes, as a result of which interest limitation will apply to fiscal unities as a whole will only be made after 1 January 2019, but with retroactive effect to that date.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Advisory Services Sarl, Luxembourg City
  • Marc Schmitz, Tax Leader
  • Dietmar Klos, Financial Services Tax Leader
  • John Hames, Global Compliance and Reporting Leader
  • Bart Van Droogenbroek, International Tax Services Leader
  • Olivier Bertrand, Transaction Tax Leader
  • Nicolas Gillet, Transfer Pricing
  • Christian Schlesser, OME – Transfer Pricing
Ernst & Young LLP, Financial Services International Tax Desks – Luxembourg, New York
  • Jurjan Wouda Kuipers
  • Hicham Khoumsi
  • Michel Alves de Matos
Ernst & Young LLP, Luxembourg Tax Desk, New York
  • Serge Huysmans
  • Xavier Picha
Ernst & Young LLP, Luxembourg Tax Desk, Chicago
  • Alexandre J. Pouchard
Ernst & Young LLP, Luxembourg Tax Desk, San Jose
  • Andres Ramirez-Gaston

EYG no. 012441-18Gbl