Luxembourg Tax Alert 2020-05

Luxembourg Tax Alert 2020-05



Julien Bieber

Partner, Alternative Investments

KPMG in Luxembourg


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Luxembourg to introduce limitations on the deduction of payments made to blacklisted countries

Luxembourg Government Council approved on 25 March 2020, a draft law aiming at refusing the tax deductibility of interest and royalties paid or due to associated enterprises located in a country listed on the EU blacklist.

This decision follows a resolution from the Economic and Financial Affairs Council of the EU (ECOFIN) issued on 5 December 2019, requiring EU Member States to introduce possible sanctions for countries that are on the EU blacklist.

The current list includes American Samoa, the Cayman Islands, Fiji, Guam, Oman, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

The proposed date to enforce this draft law is not yet known.

For other countries that are not on the list (and for payments made to non-associated enterprises located in blacklisted countries), the Luxembourg authorities will continue to check that payments made by Luxembourg taxpayers are economically justified and comply with the arm’s length principle.

All the other rules remain unchanged, i.e. general principle of deductibility of interest and royalties, and absence of withholding tax on these payments (except in very specific circumstances).

We will provide you with further information as soon as the draft bill is published and filed with the Chamber of Deputies.

In the meantime, our tax advisory team is available to answer any questions you may have.

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