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On 30 March 2023, Luxembourg Administrative Tribunal (the “Tribunal”) rendered a decision denying the use of carried forward tax losses to a Luxembourg company (“LuxCo”) based on the abuse of law provision (the “Decision”). The case concerned tax losses dating from a period during which LuxCo was a holding company, and which it intended to use after a number of years of being a dormant company in order to offset capital gain realised from the disposal of immovable property.

On 9 June 2023, the Luxembourg tax authorities (“LTA”) issued a circular L.I.R. n°168quater/1 (the “Circular”) clarifying the application of the reverse hybrid rules, as provided for in article 168quater of the Luxembourg Income Tax Law (“LITL”). Additionally, a FAQ on the related tax form 205 was published, detailing the tax compliance obligations of reverse hybrid entities.

Advocate General Juliane Kokott challenged the European Commission’s claim that Luxembourg provided unauthorized state aid to Amazon through tax advantages. In her Opinion on Amazon case (C-457/21), the AG highlights the critical flaws in the Commission’s approach, as well as supports the annulment of the Commission’s decision by the General Court. Nevertheless, the final judgment rests with the Court of Justice of the European Union.

The European Union finance ministers have reached a political agreement on the updated compromise text for the draft Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation. The DAC8 Directive, among other, introduces tax transparency rules for crypto-assets and extends the automatic exchange of advance cross-border rulings, under certain conditions. It is expected to be formally adopted in early June 2023.

Further to the decision of the General Court in the Engie Cases, Engie and Luxembourg appealed before the CJEU. In her Opinion delivered on 4 May, AG Kokott suggests that the CJEU should uphold the appeals, set aside the judgment of the General Court and annul the decision of the EC.

On 28 March 2023, Luxembourg government introduced bill no. 8186 which proposes new procedures for concluding bilateral and multilateral advance pricing agreements, clarifies the conditions for contesting tax assessments, and outlines specific transfer pricing documentation requirements. The Draft Bill also introduces new bookkeeping requirements, and enhances administrative cooperation between the Luxembourg tax authority and other public authorities.

On 27 January 2023, the Luxembourg Administrative Tribunal (the “Tribunal”) pronounced its judgment in case n° 42432 relating to the tax treatment of redemption of a share class. In this landmark decision, the Tribunal dealt with the issue of whether the repurchase of such a class of shares, followed by their cancellation and a reduction in the share capital, triggers Luxembourg withholding tax (“WHT”). Based on the decision of the Tribunal, the redemption should qualify as a capital gain at the level of the shareholder up to the amount corresponding to the fair market value of the redeemed shares.

On 14 February 2023, the European Union adopted the revised list of non-cooperative jurisdictions for tax purposes, whereby British Virgin Islands, Costa Rica, Marshall Islands and Russia were added to the list. The Blacklist entered into force on 21 February 2023, upon its publication in the Official Journal of the EU. It is now composed of 16 jurisdictions, with the next revision due in October 2023.

On 17 January 2023, the Committee on Economic and Monetary Affairs of the EU Parliament adopted a number of recommendations for amendments to the draft directive relating to the prevention of the misuse of shell entities. ATAD III aims to combat misuse of shell entities by introducing minimal substance requirements and improving exchange of information between the EU tax administrations. It is scheduled to enter into force on 1 January 2024, with a look-back period starting on 1 January 2022.

On 12 October 2022, the 2023 draft budget law no. 8080 (“Draft Law”) was introduced to the Luxembourg Parliament. As the current period is characterized by various political and economic developments, no extensive tax measures have been proposed. The Parliament approved the Draft Law on 15 December 2022, subject to confirmation by the Luxembourg State Council that the second vote is not required.

Further to our tax alert “European Union reaches an agreement on minimum corporate tax”, we would like to share information on the measure concerning Pillar 2. Learn more

Further to our tax alert “Luxembourg’s newly proposed tax measures”, we would like to share information on the measure concerning the decrease of Luxembourg VAT rates for year 2023. Learn more

On 12 October 2022, the 2023 draft budget law no. 8080 (‘‘Draft Budget Law‘‘) was introduced to the Luxembourg Parliament. Due to the current economic situation, no substantial tax reforms have been proposed. On the same day, a drop in VAT rates was proposed by the draft law no. 8083 (“Draft VAT Law”). Moreover, draft law no. 8082 (“Draft RE Law”), introducing changes to the taxation of real estate, was filed with the Luxembourg Parliament on 10 October 2022. Learn more

The preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) is challenging. Each year, new Standards and amendments are published by the International Accounting Standards Board (IASB) with the potential to significantly impact the presentation of a complete set of financial statements.

CSSF has released a new Circular on 14 October for IT/Cloud Outsourcing. This new Circular replaces the prior authorisation requirement with a prior notification requirement in the event of outsourcing material activity but not business process outsourcing.

Luxembourg Companies have to pay quarterly tax advances for Corporate Income Tax (CIT), Municipal Business Tax (MBT) and Net Wealth Tax (NWT) upon request from the Luxembourg tax authorities (LTA). Learn more