European Commission sues Luxembourg

In 2016, the European Union adopted the Atad1 Directive. Its main objective is to prevent tax evasion. As with any European Union directive, it had to be adapted to the legislation of each member state.

Court, Themis, justice

The core of the directive is that it may allow financial organizations, such as banks, to exclude percentage payments from the corporate tax base. The document provides an impressive and detailed list of companies that can benefit from such a privilege. However, Luxembourg also allows companies engaged in securitization activities to benefit from the exemption.

Securitization is an innovative financing technique. It involves the transformation of illiquid financial assets into securities.

Securitization refers to all those who are involved in the process of securitizing. The most common are agents, auditors, custodians and rating agencies.

The European Commission does not approve of this kind of attitude. It creates conditions for violation of the tax legislation of the European Union. For this reason, in the year 2020, the European Commission sent an official instruction to Luxembourg with the request to bring the contradictory documents into conformity.

The Grand Duchy has still not done so. As a result, a lawsuit has been filed with the Court of Justice of the European Union. The details of the case are not being revealed, nor are Luxembourg's plans to defend its interests. All that remains to be done is to wait for the final decision of the highest court.