LexGo

Luxembourg Lower Court Delivers Judgment on the Scope of Hidden Dividend Distributions
21/10/2020

In its judgment handed down on 25 September 2020, the Lower Administrative Court (Tribunal Administratif) considered the scope of hidden dividend distributions under Luxembourg law.

In the case at hand, the taxpayer (a company) had booked in its 2013 and 2014 financial accounts provisions for bonuses to be paid to its managing director (who was also the shareholder) and to the managing director’s wife (who was an employee of the company), that the company had not yet paid out. The Luxembourg tax administration took the view that these bonuses were excessive compared to market practice and sought to requalify the deemed excessive part of the provisions as hidden dividend distributions and subject them to 15% withholding tax.

At issue was therefore (i) whether the wife, who was not a shareholder, could fall within the scope of “interested person” for the purposes of the definition of dividend distribution and (ii) whether accounting provisions could fall within the meaning of hidden dividend distributions.

The Lower Administrative Court confirmed a number of interesting points. First, Article 164(3) of the Luxembourg income tax law defines hidden dividend distributions as an advantage conferred directly or indirectly by the company to a shareholder, group company or interested person that a third party would not have received. As regards the meaning of “interested person” the Court held that no direct relationship between the company and that person is required but that the advantage must be motivated by a shareholder interest - thus a person with sufficiently close links with a shareholder (such as a spouse) may receive a hidden dividend distribution.

However, the Lower Administrative Court also held that, in the absence of effective payment to the intended recipient, the provisioning of bonuses could not be lawfully qualified as a hidden dividend distribution since it did not give rise to an effective distribution, i.e.: an impoverishment of the Company to the benefit of a third party. The Court acknowledged that while the provisions had diminished the company’s profits, it took the view that only effective payment of the bonuses could give rise to a hidden dividend distribution. Implicit in the Court’s reasoning is that the shareholder and his spouse had not in fact received an advantage from the company.

Zie ook : Bonn Steichen & Partners

[+ http://www.bsp.lu]


Click here to see the ad(s)
Alle artikels Vennootschapsrecht

Laatste artikels Vennootschapsrecht

Contribution in kind to an SARL directly at incorporation
24/09/2021

Contributions in kind to the share capital of private limited liability companies (sociétés à respons...

Read more

Financial assistance rules not applicable to private limited liability companies (société à re...
10/09/2021

The draft law 7791 aiming at clarifying whether the rules regarding financial assistance contained in the Luxembourg law o...

Read more

Clarification of the financial assistance rules applicable to Luxembourg sociétés à responsabi...
12/08/2021

On 14 July 2021, the Luxembourg Parliament adopted a long-awaited amendment to the law of 10 August 1915 on commercial com...

Clarification of the financial assistance rules applicable to Luxembourg sociétés à responsabilité limitée Read more

Extension of the right for companies to hold meetings without physical attendance until 31 December
05/07/2021

A new law has been adopted and published on 30 June 2021 to extend, with immediate effect, until 31 December 202...

Extension of the right for companies to hold meetings without physical attendance until 31 December Read more

LexGO Network