Luxembourg Ratifies The BEPS Multilateral Instrument

Executive Summary

On 14 February 2019, the Luxembourg Chamber of Deputies voted to approve the OECD sponsored Multilateral Convention to Implement the Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (commonly referred to as the "Multilateral Instrument" or "MLI").

The MLI is an innovative, new multilateral approach to curb tax treaty abuse as part of the OECD's Base Erosion and Profit Shifting ("BEPS") initiative to close certain inconsistencies in bilateral tax treaties that gave rise to perceived tax treaty abuses.

The MLI will impact the use of tax treaties in international tax planning with a "principal purpose test" that may deny tax treaty benefits, such as reduced or eliminated withholding taxes, if there is not a sufficient business purpose (non-tax reason) or economic substance in the tax treaty jurisdiction.