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Luxembourg: Proposed limitations on deduction of payments made to “blacklisted” countries

Luxembourg: Limitations on deduction of payments

Luxembourg Government Council on 25 March 2020 approved a draft law that would disallow the deductibility of interest and royalties paid or due to related entities located in a country listed on the EU “blacklist.” The proposed date to enforce this measure is currently not known.

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This action follows a December 2019 resolution from the Economic and Financial Affairs Council of the EU (ECOFIN) requiring EU Member States to introduce possible sanctions regarding jurisdictions on the EU blacklist. That list currently includes American Samoa, the Cayman Islands, Fiji, Guam, Oman, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the U.S. Virgin Islands, and Vanuatu.

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

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

Read a March 2020 report prepared by the KPMG member firm in Luxembourg

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