New bill amending Luxembourg interest limitation rules and impacting securitisation vehicles

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On 9 March 2022, the Luxembourg government submitted a new bill to Parliament to amend the scope of the interest limitation rules (N° 7974).

The bill purports to exclude, as of 1 January 2023, securitisation vehicles governed by article 2, point 2) of Regulation (EU) 2017/2402 (“SVs”) from the list of financial undertakings to which the interest limitation rules of article 168bis of the Luxembourg income tax law (“LITL”) do not apply.

Context of the bill

The bill is a response to the infringement procedure (INFR(2020)2183) initiated by the European Commission through a letter of formal notice sent to Luxembourg in May 2021, and the subsequent reasoned opinion issued to Luxembourg in December 2021.

According to the European Commission, the exclusion of SVs from the scope of the interest limitation rules went beyond the permitted exclusions of Council Directive (EU) 2016/1164 (“ATAD I”). Although Regulation (EU) 2017/2402 was introduced after ATAD I, which could have justified its inclusion in the list of excluded financial undertakings, the European Commission does not share this approach and rather considers that the list of excluded financial undertakings in ATAD I is “static” and cannot be extended to other types of regulated entities of the financial sector.

Luxembourg was therefore requested to amend its legislation accordingly.

Impact of the bill

As of fiscal year 2023, SVs set up as fully taxable corporations would be fully subject to the interest limitation rules of article 168bis LITL, with the consequence that the deduction of interest expenses in excess of interest income for a given tax year will be limited to the higher of (i) EUR 3m or (ii) 30% of a SV’s tax EBITDA.

In other words, up to 70% of a SV’s income (other than interest and equivalent income) may become fully subject to Luxembourg corporate income taxes following this amendment.

This amendment will not be retroactive, thereby respecting the principles of legal certainty and legitimate expectations.

The impact of the bill should be limited in practice, as the vast majority of Luxembourg securitisation undertakings do not meet the criteria of Regulation (EU) 2017/2402.

Lastly, it is noteworthy that the bill should have no impact on tax-transparent securitisation funds.

Next steps

The bill has to follow the legislative process before being passed into law. In the meantime, concerned SVs should anticipate this change and determine if and how they might be impacted by it. Brouxel & Rabia would be pleased to support and guide you in this exercise.

For more details about this proposed amendment, please do not hesitate to contact us.

Samia Rabia, Partner - Brouxel & Rabia Luxembourg Law Firm
Samia RABIA, Partner
Olivier THILL, Counsel - Head of Tax
Olivier Thill, Counsel
Eric JUNGBLUT, Counsel


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