The draft bill published on 30 March 2020 and introducing measures to deny the tax deduction of interest and royalty due to affiliated parties established in a blacklisted jurisdiction has been voted on 28 January 2021. The measures will be applicable as of 1 March 2021.
This draft bill followed the resolution from the Economic and Financial Affairs Council of the EU (ECOFIN) issued on 5 December 2019, requiring EU Member States to introduce legislative defensive measures for countries that are on the EU list of non-cooperative jurisdictions for tax purposes.
Please refer to our previous newsletter (Luxembourg to deny the deduction of interest and royalty payments to blacklisted countries) for an overview of the new provisions. The most important changes made since the publication of the draft bill are the following:
- Since the bill has not been voted before end 2020, the provisions will become applicable as of 1 March 2021 (instead of 1 January 2021);
- Instead of interest and royalty “paid or due”, only interest and royalty due should not be deductible for tax purposes. This amendment aims to ensure that the law will not carry a retroactive effect.
These new provisions will apply unless the taxpayer is able to prove that these expenses have been incurred in respect of transactions that have been carried out for valid commercial reasons and that reflect economic reality.
For 2021, the blacklisted jurisdictions to be taken into consideration for the application of these new measures should be those included in Annex I of the Official Journal of the European Union as reflected in its last version as of 1 March 2021.
For the following years, the list existing as of 1st January of the given year should be consulted.
When a jurisdiction is being removed from the EU blacklist during a given year, the new provisions should cease to apply as from the day of publication of the Official Journal of the European Union acknowledging such removal.
The current EU blacklist includes the following jurisdictions: American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu and Seychelles. This list should be revised in February 2021.
Michiel Boeren - Partner (michiel.boeren@tiberghien.com)
Maxime Grosjean - Senior Associate (maxime.grosjean@tiberghien.com)
Emma Fontenaud - Associate (emma.fontenaud@tiberghien.com)