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 1 - 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.

BEPS Action 12 - BEPS, Mandatory Disclosure Rules, Action 12 – 2015 Final report (October 2015).

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.

CRS - Common Reporting Standard as laid down in the Luxembourg law of 18 December 2015, as amended.

DAC - Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

DAC 2 - Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.

DAC 3 -  Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.

DAC 4 - Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.

DAC 5 - Council Directive (EU) 2016/2258 of 6 December 2016 amending Directive 2011/16/EU as regards access to anti-money-laundering information by tax authorities.

DAC 6 - EU Directive 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.

DAC 6 Bill - Luxembourg bill n°7465 implementing the EU Directive 2018/822 of 25 May 2018.

DAC 6 Law - The DAC 6 Bill as approved by the Luxembourg Parliament (Chambre des Députés) on 21 March 2020, which will become the Luxembourg law implementing DAC 6 into Luxembourg domestic law upon its promulgation.

DOTAS - UK Disclosure of Tax Avoidance Schemes introduced in the UK in 2004 and aiming at minimizing tax avoidance

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.

FATCA - Foreign Account Tax Compliance Act as set out in the Luxembourg law of 24 July 2015, as amended.

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.

Promoter - intermediary who arranges and makes available a reportable arrangement within the meaning of  the DAC 6 Law.

Reportable information - information that needs to be reported to the Luxembourg tax administration as described in our blog "DAC 6 implementation in Luxembourg: What's Important?"

Service Provider - intermediary who provides assistance or advice in the context of a reportable arrangement within the meaning of  the DAC 6 Law.

VAT - value added tax .