On 9 March 2022, the Luxembourg Ministry of Finance published the draft law No.7974 (the “Draft Law”) which relates to the interest limitation rules. The purpose of the Draft Law is to amend Article 168bis of the Luxembourg income tax law (“LITL”) by removing the reference to securitisation vehicles regulated by the EU Regulation 2017/2402 (the “EU Regulation”) from the current list of exempt vehicles.
As a reminder, in May 2020, the European Commission issued a letter of formal notice requesting Luxembourg to correctly transpose the interest limitation rules as it is foreseen by the Anti-Tax Avoidance Directive 2016/1164 (the “ATAD 1”). According to the European Commission, Luxembourg went beyond the exemptions provided by ATAD 1 by including securitisation vehicles regulated by the EU Regulation into the scope of the exempted vehicles.
In this respect, in December 2021, the European Commission sent a reasoned opinion to Luxembourg that detailed the mistakes made by Luxembourg while transposing ATAD 1. The European Commission finally concluded that Luxembourg did not comply with its obligation to proceed with a correct transposition of the European directive. As the case could have been brought in front of the ECJ, the legislator decided to propose the following amendment to its domestic legislation.
The Draft Law intends to modify the definition of financial undertakings as described in the current version of Article 168bis LITL by removing reference to securitisation vehicles regulated by the EU Regulation. Henceforth, securitisation vehicles regulated by the EU Regulation will therefore be included in the scope of the interest limitation rules. Thus, the securitisation vehicles' exceeding borrowing costs (i.e. the interest expenses in excess of the interest income) will only be tax deductible either at 30% of its taxable EBITDA, or at EUR 3,000,000, whichever is the highest.
Luxembourg securitisation vehicles regulated by the EU Regulation will be subject to the interest limitation rules as from January 2023.