Blog: Luxembourg Blog | 12 October 2018

Luxembourg Tax Glossary

This glossary aims at explaining frequently used terms in taxation in a simple manner.

Associated Enterprise - means:

• an entity enumerated under articles 159, 160 or 175 LITL in which the taxpayer holds directly or indirectly a participation in terms of voting rights or capital ownership of 25% or more or is entitled to receive 25% or more of the profits of that entity; 
• an individual or an entity enumerated under articles 159, 160 or 175 LITL, which holds directly or indirectly a participation of at least 25% in terms of voting rights or capital ownership in the taxpayer or is entitled to receive at least 25% of the profits of the taxpayer; and
• all entities, including the taxpayer, if an individual or entity enumerated under articles 159, 160 or 175 LITL holds directly or indirectly a participation of at least 25% in terms of voting rights or capital ownership in both the taxpayer and one or more entities.

ATAD - Council Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.

ATAD 2 - Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries

BEPS - Base Erosion and Profit Shifting refers to the OECD project aimed to avoid tax avoidance strategies or to tackle aggressive tax planning that exploit gaps and mismatches in tax rules of different jurisdictions or take advantage of the technicalities of a tax system, to artificially shift profits to low or no-tax locations, or otherwise reduce tax liability. ATAD is the EU answer to this project.

CFC - Controlled Foreign Company regime aims to attribute in certain circumstances undistributed profit to a parent company when the controlled foreign company is located in a low or no tax country.

DTT - Double Tax Treaty, a convention for the avoidance of double taxation

EBITDA - Earnings Before Interest, Tax, Depreciation and Amortisation

EEA - European Economic Area

EU - European Union

Exit Taxation - Tax aiming to appropriately tax companies when they transfer their residence from a country to another. This tax is usually imposed on the unrealized gains, meaning that each country should tax the gains realized in such country.

IDLR - Interest Deduction Limitation Rules aiming to discourage artificial debt arrangements designed to minimize the taxable corporate basis by over indebting via an excess of tax deductible interest payments.

GAAR - General Anti-Abuse Rule aiming to counteract aggressive tax planning by disregarding arrangements established mainly for tax avoidance purposes.

Hybrid Mismatches - This rule aims to tackle situations where a cross-border instrument or entity is treated differently for tax purposes by the countries involved, resulting in favorable tax treatment (double deduction, deduction without inclusion and non-taxation without inclusion)

IFRS - International Financial Reporting Standards

LITL - Luxembourg Income Tax Law dated 4 December 1967, as amended

MLI - Multilateral Instrument, which is in fact multilateral convention to implement tax treaty measures to prevent base erosion and profit shifting