OUR INSIGHTS AT A GLANCE
- On 9 April 2019, Luxembourg deposited its instruments of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (multilateral convention or “MLI”) which will enter into force on 1 August 2019 in Luxembourg.
- Luxembourg took the approach to have all its double tax treaties (“DTTs”) in force covered by the MLI. However, for a covered tax treaty to be amended by the MLI, it is required that both contracting states first decide that the MLI should cover the specific DTT and second, that both countries adopt matching options/alternatives.
- As of today, the DTTs concluded by Luxembourg with the following countries are concerned: Austria, Finland, France, Georgia, Guernsey, Ireland, Isle of Man, Israel, Japan, Jersey, Lithuania, Malta, Monaco, Netherlands, Poland, Serbia, Singapore, Slovak Republic, Slovenia, Sweden and the UK.
- MLI provisions will modify Luxembourg DTTs on different timescales depending on the kind of tax (withholding tax or otherwise), the date of entry into force of the MLI for each of the contracting States and the tax year observed by the companies concerned.
On 9 April 2019, Luxembourg deposited its instruments of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (multilateral convention or “MLI”). The MLI is a comprehensive and flexible convention that allows countries to implement a wide range of tax treaty related BEPS measures with many options and alternatives. Luxembourg took the approach to have all its double tax treaties (“DTTs”) in force covered by the MLI. However, for a covered tax treaty to be amended by the MLI, it is required that both contracting states first decide that the MLI should cover the specific DTT and second, that both countries adopt matching options/alternatives. Hence, if one contracting state is in favour of a certain provision while the other contracting state has not adopted an identical option/alternative, the existing tax treaty will not be amended in this respect. In our tax alert dated 9 June 2017, we presented the approach taken by Luxembourg. In this article, we ask what the ratification of the MLI means for Luxembourg DTTs and what is the timeline to expect.
When will the MLI enter into force?
For Luxembourg, the MLI will enter into force on the 1st day of the month following the expiration of a period of 3 calendar months beginning on the date of the deposit, i.e. given that the date of deposit was 9 April 2019, the MLI will therefore enter into force on 1 August 2019.
Which DTTs will be impacted?
The entry into force of the MLI will only affect covered DTTs concluded with those countries where the MLI has entered into force as well.
To check the status of ratification by all MLI signatories and parties, please click here.
As of today, the DTTs concluded by Luxembourg with the following countries are concerned: Austria, Finland, France, Georgia, Guernsey, Ireland, Isle of Man, Israel, Japan, Jersey, Lithuania, Malta, Monaco, Netherlands, Poland, Serbia, Singapore, Slovak Republic, Slovenia, Sweden and the UK.
As from when will the MLI provisions modify Luxembourg DTTs?
As far as the application of the MLI to the DTTs referred above is concerned (i.e. to DTTs concluded with countries for which the MLI has already entered into force or will enter into force on 1 August 2019 at the latest), the MLI will apply as follows:
- with respect to taxes withheld at source on amounts paid or credited, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after the latest of the dates on which the MLI enters into force for each of the DTT contracting States (i.e. 1 January 2020);
- with respect to all other taxes, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of 6 calendar months from the latest of the dates on which the MLI enters into force for each of the DTT contracting States (i.e. tax years beginning on or after 1 February 2020). For companies with a tax year corresponding to the calendar year, this means that the application of the MLI provisions is differed until tax year 2021.
