On 14 February 2019, the Luxembourg Parliament passed the law 7333 (the Law) on the ratification of the Multilateral Instrument (MLI) into Luxembourg domestic tax law. A request to dispense the second vote has been filed .
In June 2017, Luxembourg signed the MLI, which was developed by the OECD to integrate BEPS measures into double tax treaties.
On 22 March 2018, the OECD announced that the MLI will enter into force on 1 July 2018 following the deposit of the ratification instrument by a fifth jurisdiction (Slovenia).
On 3 July 2018, Luxembourg published the ratification bill.
As of 12 February 2019, a few countries amongst the 87 signatories had ratified the MLI and deposited their instruments with the OECD (Australia, Austria, the Isle of Man, France, Guernsey, Ireland, Israel, Japan, Jersey, Lithuania, Malta, Monaco, New Zealand, Poland, Serbia, Singapore, the Slovak Republic, Sweden and the UK) with early effects for the Covered Tax Agreements (i.e. double tax treaties for which the MLI will apply) as from 1 January 2019 with respect to withholding taxes, and for purposes other than withholding taxes for taxable periods beginning on or after 1 January 2019.
Luxembourg mainly implements the minimum standard provisions that were agreed as part of the BEPS initiative, i.e., the minimum standard for the prevention of treaty abuse (BEPS report on Action 6) and the minimum standard on more effective dispute resolution mechanism (BEPS report on Action 14). For more details on this topic, please read our tax alert.
The timing of the application of the MLI and related matching provisions must be considered; in particular, the following two dates are critical:
1. Entry into force of the MLI
For the Contracting States having already ratified the MLI, its entry into force will be on the first day of the month following three calendar months after the ratification by Luxembourg. This implies that for those Covered Tax Agreements, the MLI should enter into force on 1 June 2019.
2. Entry into effect of the provisions
— For withholding taxes, the entry into effect of the MLI provisions will be on or after the first day of the next calendar year that begins on or after the entry into force. To put it in simple terms, the matching provisions should be applicable by 1 January 2020.
— For all other taxes, the MLI provisions will apply to taxable periods beginning on or after the expiration of six calendar months from the date of entry into force. This means that in the case of taxpayers having a taxable period that follows the calendar year, the MLI provisions would be applicable by 1 January 2020 only.
The ratification of the MLI is a new milestone in Luxembourg’s pursuit of the BEPS initiative.
The application of the MLI provisions on the Covered Tax Agreements will have to be closely monitored on a case-by-case basis according to the ratification by the other Contracting States and on the type of tax concerned, i.e., withholding tax or other taxes.
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