Interest Deduction Limitation Rules: Tax Authorities Release Additional Guidelines

OUR INSIGHTS AT A GLANCE

• On 28 July 2021, the Luxembourg tax authorities issued a Circular in order to provide guidance on the interpretation of the interest deduction limitation rules laid down in Article 168bis of the Luxembourg income tax law (through which the EU Directive laying down rules against tax avoidance practices ("ATAD 1") has been transposed into Luxembourg law). The Circular extends and replaces the former Circulars dated 8 January 2021 (see https://www.atoz.lu/media/insights-march-2021) and 2 June 2021.
• The interest deduction limitation rules limit the interest deductibility for tax purposes for Luxembourg corporate taxpayers and Luxembourg permanent establishments of foreign taxpayers, unless they qualify as financial undertakings or stand-alone entities. The limitation applies to exceeding borrowing costs (i.e., the amount by which the borrowing costs exceed the interest income in a given year) and corresponds to the higher of EUR 3 million