2017 Securitisation Entities to Be Made Subject to (ATAD 1) Interest Deduction Limitation Rules

On 9 March 2022, a bill amending Article 168bis of the Luxembourg Income Tax Act was brought before Parliament. The bill aims to remove 2017 securitisation entities from the list of financial undertakings that are exempt from the interest deduction limitation rules ("IDLR") stemming from ATAD 1. 

Since 1 January 2019, the deductible exceeding borrowing costs incurred by a taxpayer are limited to the greater of (i) 30% of its EBITDA or (ii) EUR 3 million. This rule was introduced following implementation of the EU Anti-Tax Avoidance Directive ("ATAD"). The Act of 21 December 2018 implementing ATAD provided for a specific and additional IDLR exemption for securitisation entities governed by Regulation (EU) 2017/2402 of 12 December 2017 ("2017 Securitisation Entities"). 

This exemption prompted a reaction from the European Commission in 2020, which notified Luxembourg that it was expected to align its list of exempt financial undertakings to the letter of ATAD and that the exemption for 2017 Securitisation Vehicles went beyond what was permissible. Bill No 7974 of 9 March is a direct reaction to the proceedings initiated by the Commission and the government's acknowledgment of the latter's interpretation of the scope of the IDLR rules and associated exemptions. It can reasonably be expected that there is very little room for change in the wording of the bill, which should be adopted relatively swiftly. 

The removal of 2017 Securitisation Entities from the list of exempt financial undertakings is expected to be effective for financial years as from 1 January 2023. 

We anticipate that some securitisation entities will need to carry out an impact assessment for this change and seek advice from their tax experts on the concrete actions to be taken in order to minimise adverse consequences.