Luxembourg: Details of corporate tax changes, proposed for 2015-2016

Luxembourg: Details of corporate tax changes

Text of a corporate tax bill that would, among other items, transpose recent amendments made to the EU Parent-Subsidiary Directive into Luxembourg tax law was made public on 5 August 2015, and has been submitted to the Luxembourg Parliament. It is expected that a vote on the bill could be completed before the end of the year.

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Parent-Subsidiary Directive

Among the measures included in this new bill are the following provisions that would transpose amendments to the EU Parent-Subsidiary Directive:

  • Provisions to modify the domestic participation exemption regime so as to comply with the new rules
  • Dividends within the scope of the Parent-Subsidiary Directive, when paid by a Luxembourg company to another EU company (or to an EU permanent establishment of another EU company) would not benefit from a withholding tax exemption if the transaction is characterized as an “abuse of law” 

Tax unity

Under current law, a tax unity group can only be formed between a Luxembourg parent company (or a Luxembourg PE of a foreign company) and its Luxembourg subsidiaries provided that certain conditions are met (notably with respect to holding thresholds and subject to tax requirements). This is typically referred to as “vertical” fiscal unity because the parent company is also a member of a consolidated tax group.

The bill includes measures to comply with EU law (and in particular with a judgment of the Court of Justice of the European Union). The new measures allow for the possibility to apply “horizontal” tax unity, whereby eligible sister companies could form a tax unity group (without having their parent company being part of the tax unity).

The bill also would modify the tax law, to facilitate the recovery of tax claims within the tax unity group and to allow each member of the tax consolidated group to be held liable for taxes owed by the parent company.

Investment tax credit

The investment tax credit would be made available for a lessor of ships used in international traffic.

Read an August 2015 report [PDF 130 KB] prepared by the KPMG member firm in Luxembourg: Details on the new proposed corporate tax rules for 2015 and 2016

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