On 14 February 2019, the Luxembourg parliament approved the bill of law to ratify the Multilateral Instrument (“MLI”) and introduce it into domestic law.
Provided Luxembourg deposits the instrument of ratification with the OECD in February, the MLI will enter into force in Luxembourg on 1 June 2019.
Once the MLI has entered into force in Luxembourg, MLI changes will apply to a tax treaty concluded by Luxembourg if:
- the tax treaty is considered a “covered tax agreement” for the purposes of the MLI by both Luxembourg and its tax treaty partner; and
- the MLI has entered into force in the other country.
Provided a tax treaty is a covered tax agreement and the MLI has entered into force in the other tax treaty country in 2019, the MLI changes as regards withholding taxes will take effect in the specific tax treaty on 1 January 2020.
MLI changes to tax treaty provisions not concerning withholding taxes will take effect in taxable periods starting on or after the expiry of six calendar months from the entry into force of the MLI in both Luxembourg and the other tax treaty country. If the MLI enters into force in Luxembourg on 1 June 2019, these MLI changes will, at the earliest, be effective for taxable periods starting on or after 1 December 2019.
It is worth mentioning that Luxembourg has not made any changes to the list of reservations it had initially made to the MLI. Moreover, note that the US has not signed the MLI, which means that the tax treaty agreed between Luxembourg and the US will not be impacted by the MLI.