On 25 March 2020, the Luxembourg Government Council approved a draft law which aims at introducing a specific non-deductibility rule for interest and royalties paid or due to an affiliated enterprise established in a jurisdiction which features on the EU list of non-cooperative jurisdictions for tax purposes. The aim of the new rule is to specifically target certain financial operations which are carried out with related enterprises established in those jurisdictions, in line with the commitment by Luxembourg, at the EU Council meeting of 5 December 2019, to implement such measures.
Indeed, following on from the work of the EU Code of Conduct Group on Business Taxation, the EU Council, in December 2017, adopted an EU list of non-cooperative jurisdictions for tax purposes, which were set out in an Annex to its conclusions. The list of non-cooperative jurisdictions is updated regularly, most recently on 18 February 2020 and currently includes the following jurisdictions, with the next update of the list being anticipated to take place in October 2020:
- Cayman Islands
- American Samoa
- Trinidad and Tobago
- US Virgin Islands
Given that the draft law has not yet been published, no further details (such as the expected timing for entry into force) are currently available. Taxpayers should therefore be mindful of the issues that the new rule could cause.