Tax Update - Draft bill on payments to EU "black-list" non-cooperative countries

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The Luxembourg government has filed on 30 March 2020 a draft law aiming to deny, under certain conditions, the tax deductibility of interest or royalties payments made to related parties established in a country blacklisted as non cooperative for tax purposes.

Indeed, according to the draft law, interest or royalties paid or due are not tax deductible if the following conditions are simultaneously completed :

  1. The beneficiary of the interest or royalties is a corporate entity (within the meaning of Article 159 LITL). If the beneficiary of the payments is not the effective economic owner, then the latter has to be considered;

  2. The interest or royalties are paid or due to an associated enterprise (within the meaning of Article 56 LITL);

  3. The corporate entity, which is the beneficiary of the interest or royalties, is established in a country blacklisted as non cooperative for tax purposes. The list of countries is not included in the draft law but it will be the list of non cooperative countries for tax purposes published by the EU Council.

However, the above interest and royalties remain tax deductible if the taxpayer provides evidence that the transactions to which the interest or royalties are related have been implemented for valid commercial reasons that reflect economic reality.

If voted this year, the new law will enter into force on 1 January 2021.

This document is provided for information purposes only and does not constitute legal or tax advice. RSM Tax & Accounting Luxembourg or any sister company should not be held responsible. Professional legal and/or tax advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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