Budget Law 2020
On 19 December 2019, the Luxembourg Parliament voted to approve the 2020 Budget Law (the "Budget Law"), which introduces several tax related measures, namely:
i. Limitation on validity of pre-2015 Advance Tax Agreements
The most important measure introduced by the Budget Law is the new provision according to which Advance Tax Agreements ("ATAs") issued before 1 January 2015 became inapplicable by law at the end of the tax year 2019. The measure was introduced by inserting a new paragraph 29b to the General Tax Law. While pre-2015 ATAs did not always contain a fixed validity period (thus potentially binding the Luxembourg tax authorities for an unlimited period), ATAs issued since the tax year 2015 are only valid for a maximum of five years (as provided for under the ATA procedure included in the General Tax Law effective as of 2015). The aim of the Budget Law was to eliminate the current inconsistency with regard to the period of validity between the ATAs granted pre-2015 and those granted thereafter under the ATA procedure.
While the amendment introduced by the Budget Law provides the possibility for taxpayers to file a new ATA request in order to renew their expired ATA, one needs to consider that a prerequisite for filing an ATA is that the tax situation to be covered by said ATA should not have yet fully developed the tax effects that one wishes to receive confirmation for. As a result, it will in most cases not be possible to request a new ATA covering the same situation as the one covered by the previous ATA. As a reminder, any ATA request is subject to mandatory and automatic exchange of information and to a fee ranging between 3.000 EUR and 10.000 EUR, depending on the complexity of the request.
ii. Services provided by writers, composers and performers now subject to the Super-Reduced VAT rate of 3%
Annex B of the Luxembourg VAT law, which covers the goods and services which are subject to the super-reduced VAT rate of 3%, has been amended in order to not only cover copyrights of writers, composers and performers, but also all services provided by them within the framework of their activity.
iii. Increase of excise duty
According to a communication from the Ministry of Finance, the excise duties on road fuels will increase in 2020 and will lead to an increase in prices, ranging between 1 and 3 cent per litre of petrol and between 3 and 5 cent per litre of diesel, which will be implemented between February and April 2020.
The draft law implementing the Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (hereafter the "ATAD 2 Directive") was passed on 19 December 2019 by the Luxembourg parliament. As a result, it applies since 1 January 2020 as expected (save for the reverse hybrid provisions which will only enter into effect starting 2022). Despite several comments having been made by the Council of State, the final law contains no material changes from the initial draft law, save for a clarification included in the reverse hybrid provisions.
As a result, the Luxembourg specific 10% de minimis rule included in the related parties definition and which represents an exception to the "acting together" concept, which was not included in the ATAD 2 Directive, has been maintained and provides a welcome safe harbour provision for widely held investment funds.