The Grand Duchy, the home of the UCITS fund and increasingly a hub for alternative funds such as real estate, has published a bill transposing an EU Directive into domestic law that sets its sights on tax avoidance.

The legislation is called ATAD 2, based on statute from 2017 which aimed to put the second EU Anti-Tax Avoidance Directive into domestic law.

EU Member States have until 31 December 2019 to transpose most of the measures in ATAD 2 into their domestic laws, and must apply those provisions from 1 January 2020.

As this is an EU Directive it is subject to a degree of gold-plating, this is to say that Luxembourg and other states can interpret measures as they see fit (as opposed to regulation which has to be precise to the exact wording).

William Jean-Baptiste of the offshore law firm Ogier said: “The draft law provides clarification on some crucial questions, in particular regarding the application of the new rules to investment funds.

“However, at this stage, the draft law still needs to go through the Luxembourg legislative process and we expect that some amendments will be made, in particular further to the input of the Luxembourg Council of State.”

Certain Luxembourg entities which are liable for corporation tax, including Luxembourg permanent establishments of foreign entities, will be subject to the legislation from 1 January 2020.

In addition, the bill contains provisions to target reverse hybrid mismatches which will apply to Luxembourg tax transparent partnerships which would otherwise be as treated as opaque by their foreign-domiciled owners from 1 January 2022.