Extension until 31 December 2022 of the legal measures for taking corporate decisions remotely: legal and tax implications

The corporate law derogative measures regarding the holding of remote meetings or the taking of written resolutions for entities in relation with the prevention of the Covid-19 Pandemic are extended until 31 December 2022.

Pursuant to the law of 23 September 2020, as amended (the “Law”), these measures were applicable until 31 December 2021. They have been extended several times, each time as the expiry date of the Law approached and it appeared that the health situation had not been restored to normal.
A law has been adopted on 17 December 2021, whose purpose is to extend for another year the measures, until 31 December 2022 included.
As a reminder, these measures allow companies to (i) hold general meeting without physical attendance and (ii) take decisions of the management bodies by remote board meetings or through circular resolutions, notwithstanding any contrary provisions of the bylaws.
Ability to hold general meetings of shareholders without physical attendance

The Law allows any company (including regulated or listed companies) to hold any general meeting without physical attendance, notwithstanding any contrary provisions of its articles of association. 
The management body may require the shareholders to exclusively participate in meetings through one of the following means:

  • via remote or electronic vote, provided that the full text of the resolutions has been communicated to the shareholders; or
  • through a power of attorney granted to an intermediary designated by the company; or
  • via videoconference or audio conference, which must allow the identification of each shareholder.

Shareholders attending general meetings through any of such means will be considered as present for quorum and majority computation purposes.
The above provisions are also applicable to bondholders.
Decisions of other corporate bodies taken remotely or by circular resolutions
The Law also provides that other corporate bodies i.e. management bodies, such as board of managers, board of directors and supervisory boards, may hold meetings without any physical attendance. 

The available alternatives are either:

  • Holding board meetings remotely, by conference call / video; or
  • Written circular resolutions. 

As for general meetings, these options are permissible even in case of silence of or contrary provision in the articles of association of the company - the Law will prevail, regardless of any possible restriction in the articles of incorporation.

Extension of the corporate derogative measures

Such derogative rules will thus be applicable until 31 December 2022.

The statement of reasons of the draft bill of law justifies the need to extend these measures by another year by the fact that although health measures are taken in the context of the Covid-19 pandemic, it is not possible to predict the future health situation. Nonetheless, the holding of general meetings or board meetings of a company or other legal entity often involves international travel, potentially from countries subject to more restrictive health measures depending on the evolution of the pandemic in their respective countries of residence.
In order to avoid the difficulties related to the organisation of a physical meeting or the risk of an insufficient quorum due to managers or shareholders prevented to attend, the legislator deemed necessary to extend the Law’s regime.
The bill of law also reminds that this regime is a faculty and entities are able to hold physical meetings, in compliance with the health measures in force.
In our experience, this flexibility has been largely used by Luxembourg companies, especially given the specificities of Luxembourg where the board of managers of the companies are often composed of non-Luxembourg managers.
However, it should be raised that the Law provides for derogations from a corporate law perspective, but not from a tax law perspective.
Tax perspective
Key take-away: this measure is welcome but it is also expected that taxpayers will likely have to conduct pre assessment of their governance in view of applying this flexibility, so that to consider the possible Luxembourg and foreign impacts as far as e.g. their tax residency is concerned but also taking into account the draft European directive dealing with shell companies, the anti-tax avoidance directive 3.
To elaborate:
Amongst other criteria, the decision taking process, the location or the frequency (board meetings, general meeting of shareholder or any other corporate bodies) are factored when e.g.

  • assessing the tax residency of a company (the tax residency of a company – as defined in article 159 of the Luxembourg Income Tax Law), that is one of the key conditions to benefit from the application of double tax treaties or European directives (such as the EU parent subsidiary directive); or
  • assessing the possible recognition of (taxable) foreign permanent establishments.

Also, on 22 December 2021, the European Commission has released a draft proposal setting out union rules to prevent the misuse of shell entities for tax purposes with no - or only minimal - substance and economic activity: the anti-tax avoidance Directive 3 ("ATAD 3"). In practice, with the view to fight against the use of shell companies for improper purposes (such as aggressive tax planning, tax evasion or money laundering), common EU tax related substance requirements should be established and met for entities operating within the European Union ("EU"). In the case where a company would not comply with these new substance requirements, the tax administration has the possibility to deny tax advantages linked to the misuse of qualifying shell companies (such as benefits of double tax treaties or of EU directives). For more details, please refer to: EU Commission releases draft Directive proposing measures to prevent the misuse of shell entities for tax purposes (pwc.com).
In that respect, although these flexible 2022 corporate measures are welcome, we are of the view that, even more than before, the use of this corporate flexibility will require taxpayers to carefully consider, assess and document their corporate governance (not only from a Luxembourg perspective but also from the perspective of any foreign countries involved). This should be particularly true regarding Luxembourg companies that would have systematically used these exceptional measures since the beginning of the pandemic.
In practice, such a governance assessment (and ultimately documentation) should especially consider:

  • the ATAD 3 requirements,
  • the activities of the Luxembourg company,
  • the composition of the various corporate bodies in place and the level of involvement required from these corporate bodies.
  • the reasons behind the use of this corporate flexibility (e.g. the impossibility to travel to Luxembourg as supported by any available evidences)
  • the different territories involved and their specificities.
  • the documentation available (e.g. board minutes, ….) and internal policy in place (local or at group level).

Should you have any questions, do not hesitate to contact respectively the teams of PwC Legal (for legal aspects) and PwC sc (for tax aspects).

Contributors for the legal aspects
(PwC Legal* team)

Jean-Yves Lhommel - Partner, Corporate - PwC Legal Luxembourg* 
T: +352 26 48 42 3505

Joy Peynet - Senior Associate, Corporate - PwC Legal Luxembourg*
T: +352 26 48 42 3539

Contributors for Tax aspects
(PwC sc team)

Anthony Husianycia - Partner - PwC Luxembourg
T: +352 49 48 48 8500

Thierry Braem - Partner - PwC Luxembourg
T: +352 49 48 48 8380

Muriel Filipucci - Partner - PwC Luxembourg
T: +352 49 48 48 8304 

Sami Douenias - Partner -PwC Luxembourg
T: +352 49 48 48 3061