With draft law No. 7390 (the “Draft Law”), which was submitted to the Luxembourg Parliament on December 4th 2018, Luxembourg aims at further expanding its already comprehensive double tax treaty network. If adopted, the Draft Law will ratify a new double tax treaty, replace an existing one and approve an amendment agreement (avenant) as well as a protocol to two other existing tax treaties.
Firstly, with respect to the two new double tax treaties, the first one is with the French Republic and aims at replacing the existing double tax treaty, as further detailed in another section of the present newsletter and our previous newsletter dated March 2018; the second one which is with the Republic of Kosovo generally follows the latest OECD Model Tax Treaty and includes, inter alia, the confirmation that investment funds qualify as residents under the double tax treaty. Interestingly, it does not provide for a real estate rich clause, unlike other recent double tax treaties entered into by Luxembourg.
As regards the amendment agreement, it relates to the double tax treaty entered into with the Kingdom of Belgium and amends, in particular, the article dealing with employment income, by providing for a 24-day period, during which residents of one contracting state working in the other contracting state can either work in the first contracting state or in a third contracting state, without jeopardising the taxation right of the other contracting state for the overall employment income. This change will be welcomed by Luxembourg workers commuting from across the border who, as a result, can be assured that working 24 days or less outside of Luxembourg (in their home country or in a third country) will not impact Luxembourg’s taxation right of their overall employment income (unless the third country is entitled to a taxation right on said days spent on his territory under another double tax treaty).
Finally, as regards the protocol, this relates to the double tax treaty entered into with Uzbekistan and aims at updating the existing double tax treaty in order to implement the latest OECD recommendations, such as an updated preamble, updated exchange of information language as well as the inclusion of a limitation of benefit based on the principle purpose test.