Luxembourg – Clarification of the regime of IP rights

The Luxembourg Cour administrative ruled on disputes relating to the application of Article 50bis of the Luxembourg Income Tax Act.

As a reminder, according to Article 50bis, Luxembourg companies and Luxembourg branches of foreign companies can benefit from an 80% exemption on net income (royalties) derived from certain IP rights and on capital gains resulting from the disposal of such IP rights, including copyrights on software, patents, trademarks, domain names, designs, models, acquired or constituted after 31 December 2007.

The Luxembourg Cour administrative delivered two decisions dated 30 July 2014.

In the Zeit case, the Luxembourg tax administration refused to grant the exemption for IP revenues derived from unregistered designs relating to cartoon characters. In the first instance, the Luxembourg Tribunal administratif referred to Article 1.2.a) of Regulation 6/2002 on Community designs which confers protection for unregistered designs from the moment they are made available to the public, holding that nothing in Article 50bis prevents an exemption being awarded to designs for which no application has been filed.

However, the Luxembourg Cour administrative overturned this decision stating that cartoon characters constitute copyright protected work rather than designs and therefore are excluded from the exemption's scope. The Cour administrative adopted a restrictive interpretation of a design, ruling that computer created characters are not products whose appearance could be protected as design work.

In the Zinc Alloy case, the Luxembourg tax administration refused to grant the exemption for revenues derived from a name and a logo that was used before the 31 December 2007 and registered after that date.

The Cour administrative stated that the criteria of the "creation date" must be interpreted as from its legal registration date and not as from its effective use in practice. Therefore, an undertaking using a sign before 31 December 2007 but registering it after that date could benefit from the exemption.

The Court refused to apply the exemption for the trademark licensee as the licensee only affixes the trademark on goods and sells them on to the licensor and does not actually exploit the said rights in a given market.