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On 4 August 2023, the Luxembourg Government introduced to the Luxembourg Parliament the draft law no. 8292 (the "Draft Law"), aimed at implementing the provisions of the European Union (“EU”) Council Directive 2022/2523 of 14 December 2022 (the “EU Pillar Two Directive” or the “Directive”). In line with the Directive, and in order to ensure that large multinational enterprise (“MNE”) groups and significant large domestic groups pay a minimum level of tax, the Draft Law introduces three new taxes into Luxembourg national law.

As stated in the March tripartite agreement, a new tax credit, the “Crédit d'Impôt Conjoncture” (economic tax credit) will increase salaries retroactively from January 2023.

On 13 July 2023, the Luxembourg Government presented the draft law no. 8276 to the Luxembourg Parliament. The Draft Law proposes changes to the current investment tax credit regime by increasing the rates of the global ITC and introducing a new ITC for investments and expenses related to the digital transformation and the ecological and energy transition. The proposed measures are planned to apply as from tax year 2024.

On 30 June 2023, the Luxembourg tax authority issued the updated guidance in form of an FAQ (the “Guidance”) on the law implementing the EU Directive on the mandatory disclosure rules and exchange of cross-border tax arrangements (“DAC 6”). The Guidance contains welcome clarifications concerning hallmarks C1 and E3, as well as an explanation regarding the notification obligations of persons covered by the legal professional privilege.

On 30 March 2023, Luxembourg Administrative Tribunal (the “Tribunal”) rendered a decision denying the use of carried forward tax losses to a Luxembourg company (“LuxCo”) based on the abuse of law provision (the “Decision”). The case concerned tax losses dating from a period during which LuxCo was a holding company, and which it intended to use after a number of years of being a dormant company in order to offset capital gain realised from the disposal of immovable property.

On 9 June 2023, the Luxembourg tax authorities (“LTA”) issued a circular L.I.R. n°168quater/1 (the “Circular”) clarifying the application of the reverse hybrid rules, as provided for in article 168quater of the Luxembourg Income Tax Law (“LITL”). Additionally, a FAQ on the related tax form 205 was published, detailing the tax compliance obligations of reverse hybrid entities.

Advocate General Juliane Kokott challenged the European Commission’s claim that Luxembourg provided unauthorized state aid to Amazon through tax advantages. In her Opinion on Amazon case (C-457/21), the AG highlights the critical flaws in the Commission’s approach, as well as supports the annulment of the Commission’s decision by the General Court. Nevertheless, the final judgment rests with the Court of Justice of the European Union.

The European Union finance ministers have reached a political agreement on the updated compromise text for the draft Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation. The DAC8 Directive, among other, introduces tax transparency rules for crypto-assets and extends the automatic exchange of advance cross-border rulings, under certain conditions. It is expected to be formally adopted in early June 2023.

Further to the decision of the General Court in the Engie Cases, Engie and Luxembourg appealed before the CJEU. In her Opinion delivered on 4 May, AG Kokott suggests that the CJEU should uphold the appeals, set aside the judgment of the General Court and annul the decision of the EC.

On 28 March 2023, Luxembourg government introduced bill no. 8186 which proposes new procedures for concluding bilateral and multilateral advance pricing agreements, clarifies the conditions for contesting tax assessments, and outlines specific transfer pricing documentation requirements. The Draft Bill also introduces new bookkeeping requirements, and enhances administrative cooperation between the Luxembourg tax authority and other public authorities.

Following the monthly meeting of the Index Commission, the STATEC has confirmed the triggering of a new salary indexation as of 1 April 2023.

On 27 January 2023, the Luxembourg Administrative Tribunal (the “Tribunal”) pronounced its judgment in case n° 42432 relating to the tax treatment of redemption of a share class. In this landmark decision, the Tribunal dealt with the issue of whether the repurchase of such a class of shares, followed by their cancellation and a reduction in the share capital, triggers Luxembourg withholding tax (“WHT”). Based on the decision of the Tribunal, the redemption should qualify as a capital gain at the level of the shareholder up to the amount corresponding to the fair market value of the redeemed shares.

The 2022 tax forms are here! Discover our payroll newsflash and learn more about new rules in 2023 at a glance.

On 14 February 2023, the European Union adopted the revised list of non-cooperative jurisdictions for tax purposes, whereby British Virgin Islands, Costa Rica, Marshall Islands and Russia were added to the list. The Blacklist entered into force on 21 February 2023, upon its publication in the Official Journal of the EU. It is now composed of 16 jurisdictions, with the next revision due in October 2023.

On 17 January 2023, the Committee on Economic and Monetary Affairs of the EU Parliament adopted a number of recommendations for amendments to the draft directive relating to the prevention of the misuse of shell entities. ATAD III aims to combat misuse of shell entities by introducing minimal substance requirements and improving exchange of information between the EU tax administrations. It is scheduled to enter into force on 1 January 2024, with a look-back period starting on 1 January 2022.

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