The Luxembourg government released a bill (n° 7333) for the ratification of the multilateral instrument (MLI) into Luxembourg domestic law. The bill aims to approve the text of the MLI as initially signed by Luxembourg in June 2017, including all reserves and notifications.
Luxembourg would include all its tax treaties in force in the MLI. However, out of 82 tax treaties in force in Luxembourg, only 62 are currently “covered tax agreements” (i.e., income tax treaties for which the MLI would apply) based on the choices made by the other treaty-party countries.
The bill provisions are in line with the initial choices made by Luxembourg upon signature of the MLI in June 2017—including the minimum standards on treaty abuse (specific preamble text and the insertion of a “principal purpose test”) and the minimum standards for making dispute resolution mechanisms more effective. Luxembourg also decided to add other provisions in line with Luxembourg’s current treaty policy, such as relating to the permanent establishment provisions and application of methods for elimination of double taxation. The application of these provisions to each covered tax agreement would depend on the corresponding choices made by the other treaty-partner countries and would be determined on a case-by-case approach.
The timeline for the ratification process in Luxembourg is not known, but could be completed before year-end. Once Luxembourg has completed the ratification process of the MLI, application per covered tax agreement would depend on the ratification date by the other treaty partner and on the type of tax concerned (withholding tax or other taxes). The MLI provisions could possibly apply to covered tax treaties beginning 2019 and to other treaties beginning in 2020.
Read a July 2018 report prepared by the KPMG member firm in Luxembourg
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