Goodwin Insights 15 January, 2021

Luxembourg Circular On Interest Limitation Rules

On 8 January, 2021, the Luxembourg tax authorities published Circular L.I.R. 168bis/1 on interest limitation rules (the “Circular”).

The Circular provides much needed clarity to the interest limitation rules which have been introduced in Luxembourg law as a result of the implementation in local legislation of the EU Anti-Tax Avoidance Directive 2016/1164 (colloquially, known as ATAD). In accordance with Article 4 of ATAD, a new Article 168bis was introduced in the Luxembourg law of 4 December, 1967 on income tax, which set out new interest deduction limitation rules.

Under such law, exceeding borrowing costs are deductible only up to 30% of a corporate taxpayer’s EBITDA — subject to certain rules and exceptions which are laid out in the relevant legislation.

The concept of interest limitation remains complex and the Circular provides some much needed clarity and guidance.

Borrowing costs

Importantly, the Circular sets out several practical and numerical examples of what constitutes borrowing costs within the scope of the law. It further confirms the concept of symmetry between borrowing costs and interest income. Finally, it specifies that the rule is reserved for those borrowing costs which remain deductible after application of other provisions of Luxembourg law (in other words, other domestic tax rules must first be taken into account).


The Circular confirms that exempt income is not taken into consideration when determining taxable EBITDA for purposes of the rule.


The Circular provides useful guidance on the various exceptions to this rule. In particular, loans concluded before 17 June, 2016 are excluded from the scope of excess borrowing costs — unless subsequent modifications are undertaken. This particular exception is known as the grandfathering clause. The Luxembourg tax authorities give detailed interpretation to what constitutes ‘subsequent modifications’ or not. For example, changes which were contractually foreseen would still benefit from the grandfathering rule.

Other exceptions from the interest limitation rules have also been addressed and specifically, the exceptions relating public infrastructure projects and standalone entities have been clarified.


This Insights post gives a brief overview of the guidance provided in the Circular. Although the Circular has proved very helpful in explaining several of key concepts, there remains certain unanswered questions. Our Goodwin tax team would be pleased to assist you in answering any questions you may have with respect to this information or the Circular more generally.