On December 18th 2015, the Luxembourg Parliament voted Draft Law n°6891 and the 2016 Draft Budget Law.
"The following new tax measures are, as a result, applicable as of January 1st 2016"
- The minimum corporate income tax is replaced by a minimum net wealth tax;
- The Luxembourg intellectual property regime (“IP Box”) is abolished with a phase-out period of up to five years;
- A step-up in basis is introduced for individuals becoming Luxembourg tax residents;
- A tax amnesty regime for voluntary disclosures is introduced for Luxembourg resident and non-resident taxpayers.
- These measures are further detailed in our Tax Newsflash of October 2015.
At the same time, the Luxembourg Parliament voted draft law n°6847 (the “Draft Tax Law”) which:
- transposes into domestic law the new general anti-abuse rule (“GAAR”) and anti-hybrid instruments rule of the EU Parent-Subsidiary Directive; and
- enlarges the scope of the fiscal unity regime.
As a result of the new GAAR and anti-hybrid rules, distributions received by a Luxembourg company will no longer be tax exempt if such distributions are deductible in the country of the distributing company or if the transaction is considered as an abuse of the Parent-Subsidiary Directive. Furthermore, outbound distributions by a Luxembourg company to its EU corporate shareholders might be subject to Luxembourg withholding tax if the transaction is considered as abusive. With regard to the concept of abuse, Luxembourg law has adopted the definition of abuse found in the EU Parent-Subsidiary Directive. Thus, an abuse of law may be deemed to exist if ”an arrangement or a series of arrangements (i) has/have been put into place for the main purpose of or for one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the Directive and (ii) is/are not genuine having regard to all relevant facts and circumstances. An arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put in place for valid commercial reasons which reflect the economic reality”.
The GAAR is a de minimis rule which allows Member States to apply stricter national rules, as long as they meet minimum EU requirements.
As regards the fiscal unity, the Draft Tax Law enlarges the scope of the Luxembourg fiscal unity regime in order to comply with EU case law, by introducing the concept of horizontal tax consolidation, i.e. a consolidation between Luxembourg sister companies held by (i) a Luxembourg resident company or (ii) an EEA resident company subject to an income tax similar to the Luxembourg corporate income tax (iii) a Luxembourg permanent establishment of a non-resident company subject to an income tax similar to the Luxembourg corporate income tax or (iv) a permanent establishment of an EEA resident company located in another EEA country and subject in the latter country to an income tax similar to the Luxembourg corporate income tax. The initial Draft Tax Law has been amended to also include domestic permanent establishments of any foreign companies subject to income tax similar to the Luxembourg corporate income tax, whereas the initial Draft Tax Law only included in the fiscal unity, domestic permanent establishments of EEA resident companies fully subject to an income tax similar to the Luxembourg corporate income tax.