Navigating in a post-BEPS world –
Adoption of the law approving the Multinational Instrument (MLI)
The law approving the MLI has been adopted by the Luxembourg Parliament and published in the Memorial. The MLI will apply in parallel to the double taxation treaties concluded by Luxembourg and modify their application to ensure the application of the Base Erosion and Profit Shifting (BEPS) measures. The entry into force of the MLI will depend on the date of the deposit by Luxembourg of its instrument of approval. The provisions of the MLI with respect to a determined double taxation treaty will have effect after Luxembourg and the other party to the relevant treaty have deposited their instrument of ratification, acceptance or approval of the MLI and a specified time has passed. This could be as early as 1 January 2020.
Exchange of information upon request in tax matters – Compliance with
ECJ case law
Following the decision rendered by the Court of Justice of the European Union in the Berlioz case (C-682/15) and to comply with this decision, the law of 1 March 2019 amends the procedure applicable to the exchange of information upon request in tax matters. It reintroduces up-front verification by the competent tax administration that the requested information is not manifestly devoid of any foreseeable relevance for the purpose of the tax investigation. Furthermore, the law restores the right for the holder of the information to lodge an appeal against the injunction decision in front of the administrative tribunal.
Anti-Tax Avoidance Directive –
New provisions applicable since 1 January 2019
On 21 December 2018, the Luxembourg law implementing the European Union Anti-Tax Avoidance Directive (ATAD) was published in the Official Gazette. The law introduces a limitation to interest deductibility, Controlled Foreign Company (CFC) rules and rules countering hybrid mismatches within the EU. It also amends the existing exit taxation regime (including provisions relating to inbound transfers) as well as the General Anti-Abuse Rule (GAAR). The Law also amends two existing domestic provisions regarding the tax-neutral conversion of debt into equity and the definition of permanent establishments (PEs). The provisions of the Law apply to tax years starting on or after 1 January 2019, except for the provisions regarding exit taxation that will apply to accounting years starting on or after 1 January 2020.
The International Accounting Standards Board to address the IBOR reform impacts on IFRS reporting
The IBOR reform continue to progress as regulators are pushing to replace IBOR with Risk Free Rates by 2022. The uncertainties of the reform impact hedge accounting. Under current IFRS requirements, if forecast IBOR cash flows become no longer highly probable, cash flow hedge accounting must cease. To allow hedge accounting to continue despite the uncertainty resulting from the IBOR reform, the International Accounting Standards Board (IASB) tentatively decided on March 2019 to develop amendments to IAS 39 and IFRS 9, including supporting examples on how IBOR-related contractual terms of instruments should be amended for the uncertainty to end.
Latest endorsement of IFRS by the European Union
The European Union has formally endorsed the amendments of IAS 19 Employee Benefits and the Annual Improvements to IFRS Standards 2015–2017 Cycle in March 2019. The amendments of IAS 19 are bringing clarification on measurement assumptions and asset ceiling rules for the amendment, curtailment or settlement of a benefits plan. The Annual Improvements to IFRS Standards 2015–2017 Cycle bring minor amendments to IFRS 3 – Business combination, IFRS 11 Joint-arrangement, IAS 12 Income Taxes, and IAS 23 Borrowing Costs. They are applicable for financial periods starting 1 January 2019 or later, for entities reporting under IFRS as endorsed
by the European Union.