On 14 February 2019, the Luxembourg Parliament (Chambre des Députés) adopted bill of law 7333 ("Law") implementing the Multilateral Convention to Implement Tax Treaty Related Measures ("MLI") to Prevent Base Erosion Profit Shifting ("BEPS"). The Law reflects Luxembourg's position on the MLI notified to the OECD upon signature on 7 June 2017. The Law should affect the 81 double tax treaties ("DTTs") that Luxembourg signed with other jurisdictions.[1] The entry into force of the MLI provisions in Luxembourg will be on the first day of the month following three calendar months after the date of deposit of the instrument of ratification by Luxembourg, which will most likely be 1 June or 1 July 2019 depending on the date of the deposit. For withholding tax, the Law should apply as of 1 January 2020, while for the other taxes, the Law should start having effect on taxable periods beginning on or after the expiration of six calendar months from the date of entry into force, which should be either December 2019 or January 2020 depending on the date of entry into force (i.e., 1 June or 1 July 2019).

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* Bill of law 7333 was adopted on 14.02.2019 but has not yet been published in the Memorial.

** Based on the assumption that the instrument will be deposited with the OECD in March 2019.

The MLI implements the treaty-related provisions foreseen by the BEPS Action Plan, which includes: 

  • Action 6 :  preventing the granting of treaty benefits in inappropriate circumstances
  • Action 7 : preventing the artificial avoidance of permanent establishment status
  • Action 14 : making dispute resolution mechanisms more effective

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Only the principal purpose test ("PPT") under Action 6 as well as the mutual agreement procedure ("MAP") under Action 14 were set as minimum standards which require a consistent implementation from the participating jurisdictions, while the other provisions fall under a common approach category, such as

Action 2, or a best practice category, such as Action 14 (partially, excluding MAP).

Conclusion

In conclusion, different options were available depending on the category of the provisions and Luxembourg clearly adopted a conservative approach. Indeed, apart from certain mandatory provisions tackling treaty abuse scenarios, such as the PPT or providing for appropriate MAP, Luxembourg limited the changes to a few optional rules and made several reservations (e.g., on dual resident entities or real estate-rich companies). However, in addition to the MAP, Luxembourg chose to apply provisions on mandatory binding arbitration, which should have a positive effect on dispute resolution in tax matters

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