Tax Administrative Guidelines On The Equity Escape Clause

The Luxembourg Tax Authorities updated twice the circular of 8 January 2021 dealing with certain aspects of the interest deduction limitation rule ("IDLR") laid down in Article 168bis of the Luxembourg tax law ("LITL"). To gain insight into this circular, please refer to our previous newsletter.

With a first update made on 2 June 2021, the Luxembourg tax authorities provided additional guidance on the IDLR with respect to the so-called "equity escape clause" (Article 168bis (6) LITL). The equity escape clause foresees the possibility for a member of a consolidated group for accounting purposes to deduct its entire exceeding borrowing costs if the taxpayer can demonstrate that the ratio between its equity to its total assets is equal to or higher than the same ratio of the consolidated group. On 28 July 2021, the Luxembourg tax authorities completed their guidance a second time in order to address the application of the equity escape clause in the context of a